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UNIVERSITY  OF  CALIFORNIA. 


2c 

Accession  No.  (p  0\/<>C/  &      •    Class  No. 


THE   MONEY   QUESTION 


A   HANDBOOK   FOR   THE   TIMES 


BY 


HENRY    V.    POOR 

AUTHOR  OF  "MONEY  AND  ITS  LAWS,"  "RESUMPTION  AND  THE  SILVER 

QUESTION,"  "TWENTY-TWO  YEARS  OF  PROTECTION," 

"POOR'S  MANUAL  OF  THE  RAILROADS 

OF  THE  UNITED  STATES," 

ETC.,    ETC. 


NEW   YORK 
H.    V.    &    H.    W.    POOR 

44    BROAD    STREET 
1897 


COPYRIGHT 

1896 
H.  V.  &  H.  W.   POOR 


l  anir  Cfc 

BOSTON 


TJHI7BRSIT7 


PREFACE. 


In  the  following  pages  money  is  treated  as  a  subject  coming 
within  the  range  of  the  exact  sciences,  every  proposition,  if  properly 
elaborated,  having  all  the  force  of  demonstration. 

Three  kinds  of  money  are  in  use  in  the  United  States  : 

I.  Metallic  money,  the  universal  equivalent,  and   consequently 
the  standard  of  value,  its  value  being  measured  by  its  weight. 

II.  The  notes  and  credits  of  banks  and  bankers,  issued  or  as- 
sumed to  be  issued,  in  the  discount  of  merchants'  bills. 

III.  Notes  of  the  Government,  for  the  redemption  of  which,  pre- 
vious to  their  issue,  no  adequate  means  are  provided. 

The  first  kind  need  not  be  considered  at  any  length,  as  its  value  is 
measured  by  its  cost  and  the  demand  therefor,  the  insignia  of  Govern- 
ment adding  nothing  to  its  value. 

The  value  of  the  second  kind  of  money  depends  on  the  provision 
made  for  its  retirement  previous  to  its  issue.  If  the  institutions 
issuing  it  are  restricted  to  the  discount  of  bills  representing  merchan- 
dise prepared  for,  or  in  process  of  distribution,  it  will  be  retired 
by  its  use,  being  accepted  equally  with  metallic  money  by  the 
holders  of  merchandise,  and  by  the  issuers  in  the  payment  of  bills 
in  the  discount  of  which  it  was  issued.  As  it  is  safer  and  more  con- 
venient in  use  than  metallic  money  it  will  have  the  preference,  its 
use  discharging  capital  from  the  exchanges.  It  has  become  the 
money  of  all  commercial  communities,  metallic  money  having  with 
them  little  other  function  than  the  discharge  of  balances  arising  in 
their  foreign  or  domestic  trade. 

At  the  foundation  of  our  Government  provision  for  the  second 
kind  of  money,  that  of  commerce,  was  made  through  the  instrumen- 
tality of  a  National  Bank  which  served  as  the  custodian  of  the  public 
revenues  collected  and  discharged  by  means  of  its  notes.  The  Bank 
was  restricted  in  its  issues  to  bills  of  exchange  representing  merchan- 
dise in  the  process  of  distribution,  its  issues  being  a  part  of  the 


iv  PREFACE. 

machinery  therefor.  They  could  not  be  in  excess,  as  they  were 
presently  used  in  the  place  of  metallic  money  to  reach  their  con- 
stituent, being  retired  by  their  use.  No  restriction  was  imposed  as 
to  the  amount  of  notes  that  might  be  issued  other  than  the  limit  to 
the  discount  of  merchants'  bills. 

At  the  foundation  of  the  Government  State  Banks  were  in  operation. 
Their  number  was  rapidly  increased  and  to  such  an  extent  that  they 
always  supplied  the  greater  part  of  the  currency.  Their  issues  were 
received  by  the  National  Bank  in  the  payment  of  the  revenues,  as  in 
the  ordinary  course  of  business.  As  the  Bank  had  to  account  to 
Government,  at  the  par  of  coin,  for  the  notes,  received  in  the  pay- 
ment of  the  revenues,  of  the  State  Banks,  it  required  the  daily  dis- 
charge of  all  balances  found  against  their  issuers.  In  this  way  the 
restriction  imposed  upon  the  National  Bank  was  imposed  upon  all 
others,  so  that  there  could  be  no  excess  of  issue  either  by  the 
National  or  State  Banks.  The  result  was  a  currency  perfect  in  its 
kind,  convenient  in  use,  and  always  of  the  value  of  the  merchandise 
which  it  represented,  and  consequently  of  metallic  money,  being 
accepted  equally  with  this  in  the  sale  or  purchase  of  merchandise. 

The  Bank,  upon  which  the  whole  monetary  system  of  the  country 
necessarily  rested,  was  overthrown,  being,  as  was  alleged,  a  menace, 
through  the  vast  capital  wielded  by  it,  to  the  liberties  and  welfare  of 
the  people.  The  State  Banks  took  its  place  as  the  custodian  of  the 
public  revenues  received  and  disbursed  in  its  notes.  As  they  were 
not  restricted  in  their  issues  to  the  discount  of  merchants'  bills,  and 
as  with  most  of  the  States  the  object  was  an  increase  of  money, 
whatever  the  kind,  they  were  speedily  compelled  to  suspend  specie 
payments.  As  the  National  Bank  was  not  to  be  restored,  and  as 
the  State  Banks  could  be  no  longer  used,  the  only  alternative  to  the 
Government  was  to  collect  the  revenues  in  metallic  money  to  be 
held  in  its  own  strong  box,  leaving  the  people,  always  to  use  paper 
money  in  some  form,  to  take  care  of  themselves.  In  time  measures 
were  gradually  adopted  by  them  for  the  improvement  of  the  cur- 
rency, among  the  most  important  of  which  were  Clearing  Houses, 
at  which  the  rule  of  the  stronger  became  that  of  the  weaker.  In 
spite  of  all  this  the  banks  of  the  newer  States,  from  the  want  of  any 
adequate  restraint,  continued  to  flood  the  country  with  their  worth- 
less issues. 

While  the  operations  of  the  Government  were  on  a  small  scale, 


PREFACE.  V 

not  exceeding  $100,000  daily,  the  payment  of  the  revenues  in 
metallic  money  did  not  cause  any  great  inconvenience,  as  only  small 
balances  remained  in  the  Treasury.  When  suddenly  its  expenses 
rose  from  $150,000  to  $3,000,000  daily,  the  alternative  presented 
to  the  Government  was  a  return  to  the  money  of  the  banks,  or  an 
issue  of  one  of  its  own  notes.  At  the  breaking  out  of  the  war  of  the 
Rebellion  the  amount  of  metallic  money  in  sight,  that  is,  in  the 
banks  of  the  cities  of  Boston,  New  York,  and  Philadelphia,  equalled 
about  $63,000,000.  The  Secretary  of  the  Treasury  undertook  to 
carry  on  the  operations  of  the  Government,  on  the  enormous  scale 
which  they  had  assumed,  wholly  by  the  use  of  metallic  money.  The 
result  was  a  speedy  suspension  of  specie  payments  by  the  banks 
which,  in  a  most  patriotic  manner,  had  placed  their  means  wholly 
at  the  disposal  of  the  Government.  As  no  return  was  to  be  made  to 
the  notes  of  banks,  and  as  metallic  money — then  gold  —  was  not  to 
be  had,  the  only  alternative  of  the  Government  was  an  issue  on  a 
vast  scale  of  its  own  notes.  To  make  way  for  these  the  issue  of 
notes  by  the  State  Banks  was  prohibited.  A  National  Safety  Fund 
System  was  indeed  created,  but  the  issue  of  notes  under  it  was 
made  so  onerous  that  only  a  limited  amount  was  supplied. 

Soon  after  the  close  of  the  war  the  Government  undertook  the  re- 
tirement of  its  notes,  a  process  arrested  from  the  stringency  created. 
If  they  were  allowed  to  remain  in  any  quantity  it  was  inevitable  that 
the  amount  would  be  largely  increased.  If  the  notes  of  the  Govern- 
ment were  proper  money,  they  should  be  issued  to  an  amount  equal 
to  the  assumed  wants  of  Government  and  people.  In  the  process 
of  their  retirement  the  amount  was  reduced  from  $700,000,000  to 
$346,000,000.  It  has  since  been  increased  so  that  it  now  stands  at 
$830,000,000.  They  have  produced,  and  are  producing,  all  the 
effects  of  a  currency  based  upon  debt  instead  of  capital ;  vast 
expenditures  without  any  adequate  means  for  their  support,  and 
great  apprehension  and  alarm  that  any  considerable  run  upon  it 
may  force  the  Government  into  a  suspension  of  specie  payments,  in 
which,  as  its  currency  is  the  basis  of  all  other  issuers,  every  industry 
in  the  land  will  be  involved.  To  avert  such  a  calamity  a  return  to 
the  system  established  at  the  foundation  of  the  Government  is  now 
urged,  a  system  which  would  provide  all  the  money  that  could  be 
properly  issued  ;  a  money  always  reflecting  the  means  of  the  people  ; 
a  money  everywhere  of  the  value  of  metallic  money,  the  latter  being 


VI  PREFACE. 

almost  wholly  discharged  from  the  exchanges.  To  urge  such  a  return 
is  the  purpose  of  the  following  pages.  The  method  is  alike  simple 
and  obvious  —  the  funding  of  the  notes  of  the  Government,  and 
the  creation  of  a  National  Bank  as  the  custodian  of  the  public 
revenues,  receivable  and  disbursed  by  means  of  its  notes,  the  issues 
of  all  other  institutions  to  be  left  free,  with  the  certainty  that  the 
restrictions  imposed  upon  the  National  Bank  will  be  imposed  upon 
all.  Such  a  return  is  inevitable ;  the  only  question  being  whether 
it  be  made  to  avert,  or  be  the  necessary  result  of  a  great  catastrophe. 


UHI7BRSITY 


MONEY. 


T  N  every  age  the  most  valued  possession  has  necessarily  been  the 
money  of  the  race,  the  standard  of  value,  the  universal  equiva- 
lent. At  an  early  stage  cowries  and  wampum  served  as  money. 
As  man  rose  in  the  scale,  with  increased  transactions,  copper,  from 
the  wider  range  of  its  uses,  became  his  most  valued  possession,  con- 
sequently his  money.  For  the  same  reason,  with  his  continued  ad- 
vance, copper  gave  place  to  silver,  and  silver  to  gpld,  with  nations 
whose  exchanges,  from  the  extent  of  their  productions,  are  on  a 
very  large  scale.  As  every  form  of  life  that  has  existed  still  exists, 
copper  is  still  the  money  of  races  on  a  comparatively  low  plane ; 
silver  with  races  highly  civilized,  but  whose  transactions,  large  in 
the  aggregate,  are  inconsiderable  in  ratio  to  their  numbers ;  and 
gold  with  all  the  great  commercial  nations  of  the  world.  In  the  sub- 
stitution of  one  metal  for  another  as  money  the  rule  of  convenience 
was  alone  followed,  precisely  as  it  has  been  in  the  substitution  of 
the  railway  for  the  ordinary  earth-road,  of  ships  driven  by  steam 
instead  of  wind,  and  of  power  for  hand  looms.  Every  one  through- 
out history  has  sought  to  convert  his  products  into  the  article  in 
most  general  request,  into  money,  or  into  promises  to  pay  money, 
certain  of  being  able,  by  direct  exchange,  to  obtain  anything  of 
which  he  might  stand  in  need.  Such  article  became  money  by 
common  preference,  in  which  neither  governments  nor  concert  had 
more  to  do  than  with  the  selection  of  articles  of  food  or  clothing. 

The  qualities  fitting  a  metal  to  serve  as  money  are  a  high  relative 
value  •  a  capacity  of  subdivision  without  impairing  its  value  ;  of 
resisting  the  action  of  the  elements ;  of  receiving,  no  matter  how 
minute  the  piece,  an  impress  denoting  the  weight  of  pure  metal  it 
contains,  consequently  its  value  ;  and  a  uniformity  in  value  through 
long  periods  of  .time  due  to  a  uniformity  in  the  cost  of  its 
production,  and  in  the  demand  therefor  based  upon  a  sense  of 


2  FUNCTION    OF    GOVERNMENTS. 

beauty  as  well  as  use.  Gold  would  not  make  a  good  tool  or  railroad 
bar,  but  were  it  in  sufficient  abundance  it  would  be  in  the  greatest 
demand  for  structures,  furniture,  and  domestic  utensils,  as  well  as  in 
the  arts.  As  it  is  not  abundant,  it  is  chiefly  used  for  decoration  or 
ornaments  for  which  a  high  price  is  paid,  as  for  other  choice  articles, 
food,  drink,  or  clothing.  Diamonds  which  have  a  high  relative 
value,  due  chiefly  to  their  rarity  and  use  as  ornaments,  are  for 
obvious  reasons  unfit  to  serve  as  money.  The  greater  its  rela- 
tive value  the  better  fitted,  other  things  being  equal,  is  an  article  to 
serve  as  such.  It  is  plain  that  without  some  article  for  which  a 
supreme  preference  was  felt,  and  which  consequently  became  the 
universal  equivalent  and  the  solvent  of  all  transactions,  man  could 
never  have  risen  above  that  condition  in  which  all  exchanges  are  in 
kind,  a  condition  alike  incompatible  with  progress  or  wealth. 

The  capacity  of  an  article  to  serve  as  reserves  adds  to  its  value 
over  and  above  that  due  to  it  from  the  demand  for  it  in  the  arts. 
Unlike  other  articles  of  merchandise,  money  has  two  functions,  — 
one,  like  that  of  iron,  in  the  arts  and  industries  of  life ;  the  other 
as  reserves  by  means  of  which  one  may,  in  small  compass,  safely 
treasure  up  his  accumulations  for  future  use,  certain  that  under  all 
conditions  they  will  retain  the  value  at  which  they  were  received. 
Unlike  metallic  money  articles  of  food  may  have  no  value  unless 
consumers  can  be  presently  found.  Of  two  kinds  of  wood,  each 
equally  well  adapted  to  certain  uses,  the  most  durable  would  have 
the  preference  as  to  price. 

Of  the  value  of  an  article  fitted  to  serve  as  money  it  would  be 
fruitless  to  inquire  the  proportion  due  to  its  use  in  the  arts  and  that 
due  to  its  use  as  the  money,  or  reserves,  of  individuals  or  society. 
The  proportion,  however,  of  the  amount  used  as  money  or  reserves 
is  regularly  decreasing  from  the  steady  increase  in  the  use  of  instru- 
ments or  symbols  by  which  the  greater  part  of  the  exchanges  of 
society  are  now  carried  on. 


FUNCTION   OF    GOVERNMENTS    IN   THE    MATTER    OF    METALLIC    MONEY. 

As  it  is  inconvenient,  or  impossible,  for  individuals  to  determine 
the  degree  of  fineness,  or  weight,  of  any  piece  of  metal  serving  as 
money,  one  of  the  most  obvious  and  important  duties  of  govern- 
ments is,  by  assay,  to  determine  such  fineness,  and  to  impose  upon 


METALLIC    MONEY    OF    THE    UNITED    STATES.  3 

each  piece  issued  evidence  of  the  weight  of  pure  metal  it  contains, 
to  be  ready  alike  for  present  or  future  use.  It  is  a  duty  akin  to  that 
of  providing  standards  of  extension  or  weight.  The  action  of  a 
government  no  more  affects  the  value  of  the  metal  subject  to  it 
than  does  the  provision  of  weights  and  measures  affect  the  value  of 
articles  measured  thereby.  When  a  metal  used  as  money  is  to  be 
used  in  the  arts,  it  is  usually  in  the  form  of  coin  or  stamped  bars, 
the  amount  used  being  thereby  easily  determined.  Coinage  estab- 
lished, all  contracts  are  assumed  to  be  payable  in  the  unit,  or  its 
multiples,  which,  by  agreement  of  the  parties  thereto,  as  well  as  by 
the  action  of  the  government,  become  legal  tender  between  them. 

METALLIC    MONEY    OF    THE    UNITED    STATES. 

Gold  Coins.  The  coinage  of  the  eagle,  having  a  value  of  $10, 
was  authorized  by  the  act  of  April  2,  1792.  Its  weight  was  270 
grains;  its  fineness,  916^3  grains.  The  weight  was  changed  by  the 
act  of  June  28,  1834,  to  258  grains;  the  fineness  to  899.225 
grains.  By  the  act  of  January  18,  1837,  the  fineness  was  changed 
to  900  grains.  The  act  of  April  2,  1792,  also  authorized  the  coin- 
age of  the  half  and  quarter  eagles  of  proportional  weight  and  fine- 
ness. Double  eagles  and  coins  of  one  dollar  were  authorized  by 
the  act  of  March  3,  1849;  the  three-dollar  piece  by  the  act  of 
February  21,  1853.  All  the  coins  were  to  be  of  the  standard 
weight  and  fineness. 

Silver  Coins.  The  silver  dollar  was  authorized  by  the  act  of 
April  2,  1792.  Its  weight  was  416  grains;  fineness,  892.4.  The 
weight  was  changed  by  the  act  of  January  18,  1837,  to  412^ 
grains;  its  fineness  to  900  grains.  By  the  act  of  1792  the  ratio 
was  i  of  gold  to  15  of  silver.  By  the  act  of  1837  the  ratio  estab- 
lished was  i  to  1 6.  By  the  ratio  of  1792  gold  was  undervalued, 
and  was  not  used  as  money.  The  object  of  the  act  of  1834  chang- 
ing the  ratio  was  to  bring  gold  into  use.  As  by  it  silver  was  under- 
valued the  small  amount  coined  went  out  of  use,  being  more  valu- 
able for  export  as  merchandise  than  as  money.  By  the  act  of 
February  12,  1873,  the  coinage  of  silver  was  discontinued,  to  be 
restored  by  the  act  of  February  28,  1878,  at  the  ratio  of  i  to  16. 
By  the  act  of  November  i,  1893,  the  coinage  of  silver  dollars  was 
discontinued. 


SYMBOLIC    MONEY. 


SYMBOLIC    MONEY.       BANKS    OF    ISSUE. 

Metallic  money  being  the  equivalent,  in  value,  of  articles  sought 
in  exchange,  so  far  as  it  can  be  dispensed  with  a  corresponding 
amount  of  capital  is  discharged  from  use.  It  is  to-day  almost  wholly 
so  discharged  by  means  of  what  may  be  termed  "  symbolic  money," 
consisting  of  bankers'  bills  drawn  against  merchandise  moving 
between  different  countries  and  widely  separated  sections  of  the 
same  country,  such  bills  entitling  their  holder  to  that  which  they  rep- 
resent ;  of  merchants'  bills  drawn  against  merchandise  moving  from 
producer  to  consumer  in  the  same  country,  and  of  the  notes  and 
credits  of  banks  and  bankers  issued  in  the  discount  of  the  same. 
An  importer  of  merchandise  into  the  United  States,  for  example, 
remits  in  the  payment  thereof  a  banker's  bill  drawn  ordinarily  upon 
his  correspondent  in  London,  the  Clearing  House  of  the  world.  To 
provide  the  means  for  its  payment  the  banker  purchases  bills 
drawn  against  exports  of  merchandise  equal  in  value  to  his  own. 
So  far  as  that  exported  equals  in  value  that  imported  no  metallic 
money  interposes  in  the  foreign  commerce  of  a  country,  imports 
and  exports  offsetting  one  another.  If  the  imports  exceed  the 
exports  in  value,  both  alike  being  the  ordinary  subjects  of  consump- 
tion, the  banker  himself  becomes  an  exporter  of  merchandise  in 
the  form  of  coin,  of  the  universal  equivalent,  now  gold,  equal  in 
value  to  such  excess,  all  commerce  between  solvent  nations  and 
communities  being  reciprocal  in  amount  or  value.  If  the  exports 
exceed  the  imports  in  value,  the  excess  comes  back  in  merchandise 
in  the  form  of  the  universal  equivalent,  which,  in  international  com- 
merce, interposes  as  a  rule  only  in  discharge  of  balances,  the  transfers 
of  merchandise  being  almost  wholly  effected  by  symbols.  These 
are  always  payable,  whether  so  expressed  or  not,  in  metallic  money,  in 
case  the  holder  prefers  this  to  the  merchandise  they  represent,  and 
as  a  guarantee  that  such  merchandise  has  a  value  in  gold  equal  to 
its  nominal  amount. 

In  the  exchanges  of  merchandise  between  widely  separated  parts 
or  sections  of  the  same  country,  as  in  the  exchanges  between  differ- 
ent nations,  metallic  money  ordinarily  interposes  only  in  the  pay- 
ment of  balances.  The  merchandise,  for  example,  moving  from 
Chicago  to  New  York  is  accompanied  by  a  bill  or  bills  representing 
its  value,  the  proceeds  of  which  are  to  serve  for  the  payment  of 


SYMBOLIC    MONEY.  5 

merchandise  of  equal  value  moving  from  New  York  to  Chicago. 
Remittances  on  either  side  are  made  by  bills  of  bankers  who,  to 
provide  the  means  for  their  payment,  purchase,  as  in  the  foreign 
trade  of  the  country,  merchants'  bills  equal  in  amount  to  their  own. 
If  the  amount,  in  value,  of  merchandise  moving  from  one  city  equals 
that  moving  to  it  from  the  other,  the  proceeds  on  either  side  serve 
for  the  payment  of  the  bills  drawn,  no  metallic  money  interposing. 
Bills  representing  merchandise  moving  in  gross  are  ordinarily  drawn 
on  such  time  as  experience  has  shown  to  be  required  for  the  distri- 
bution to  consumers  of  that  which  they  represent.  As  they  serve  for 
the  transfer  of  the  title  of  their  constituent,  they  perform,  as  instru- 
ments of  exchange,  all  the  functions  of  metallic  money. 

The  instruments  for  the  distribution  of  merchandise  represented 
by  bills  from  merchants  to  consumers  are  the  notes,  and  credits  in 
the  form  of  deposits  to  be  drawn  by  cheques,  of  banks  and  bankers, 
issued  in  the  discount  of  such  bills.  The  two  differ  only  in  the 
manner  in  which  the  proceeds  of  discounts  are  taken.  They  are 
accepted  by  the  holders  of  merchandise,  the  makers  of  the  bills 
discounted,  as  they  will  pay  their  bills  at  bank  equally  with  coin. 
As  they  are  convertible  into  merchandise  they  are  accepted  as 
money  by  those  who  have  occasion  to  purchase  the  same,  the  use 
of  metallic  money,  as  such,  being  to  reach  some  other  article  of 
merchandise.  They  are  consequently  paid  out  by  producers,  in 
whose  favor  the  bills  given  were  discounted,  in  the  purchase  of  labor 
and  material  to  be  used  in  new  creations  of  merchandise  to  take  the 
place,  as  fast  as  it  is  consumed,  of  that  upon  the  market.  By  their 
use  by  consumers,  in  the  purchase  of  merchandise,  they  fall  into 
the  hands  of  the  makers  of  the  bills  discounted  and  are  returned  to 
the  issuers  in  the  payment  of  the  same.  As  the  process  of  discount 
at  bank  consists  of  a  mutual  exchange  of  obligations,  so  the  process 
of  payment  consists  of  the  mutual  cancellation  of  the  same,  but  not 
until  they  have  been  instrumental  in  the  distribution  of  merchandise 
represented  thereby  equal  in  value  to  their  nominal  amount.  Such 
illustrations  cannot  be  too  often  repeated,  as  they  serve  to  show 
why  metallic  money  is  no  longer  used,  and  that  it  is  impossible  it 
ever  should  be  used  in  considerable  amounts  except  in  the  discharge 
of  balances,  unless  indeed  a  return  be  made  to  barbarism  in  which 
all  methods  by  which  the  operations  of  society  are  now  carried  on 
are  forgotten.  They  also  serve  to  show  what  an  elastic  currency  is 


6  SYMBOLIC    MONEY. 

—  one  that  measures  the  means  of  the  people  to  consume.  If 
merchandise  be  plenty,  its  symbol,  money,  will  be  plenty.  If  scarce, 
money  will  be  scarce,  the  remedy  being  an  increase  of  merchan- 
dise, always  to  have  its  symbol,  the  possession  of  which  entitles  the 
holder  to  that  which  it  represents. 

In  the  sale  of  merchandise,  the  holders  of  the  same,  the  makers 
of  the  bills  discounted,  receive  alike  the  notes  and  credits  of  all 
banks  of  good  standing,  as  these  will  be  received  at  all  equally  with 
their  own  in  the  payment  of  their  bills.  A  bank,  in  fact,  prefers  to 
receive  in  payment  of  its  bills  the  notes  and  credits  of  other  banks 
rather  than  its  own,  as,  in  ratio  to  the  amount  so  received,  specie 
can  be  demanded,  its  own  issues  remaining  in  circulation. 

The  exchanges  taking  place  in  the  United  States  afford  a  striking 
illustration,  the  best  probably  that  could  be  produced,  of  the  degree 
of  the  substitution  of  symbolic  for  metallic  money  —  capital  —  and  of 
the  advantages  resulting  therefrom.  In  1892  the  railroads  of  the 
country  moved,  say,  750,000,000  tons  of  merchandise,  the  value  of 
which,  at  $20  the  ton,  equalled  $15,000,000,000.  A  portion  of  this, 
say  one-half,  was  duplicated,  but  the  value  of  the  net  tonnage 
equalled  fully  $40  the  ton.  The  value  of  the  tonnage  of  the  Erie 
Canal,  of  which  a  careful  record  is  kept,  little  or  no  portion  of  which 
is  duplicated,  and  which  consists  of  freight  having  the  lowest  rela- 
tive value,  averages  $30  the  ton.  If  it  be  assumed  that  the  water- 
borne  tonnage  of  the  country  and  that  over  ordinary  highways  equals 
one-quarter  the  whole,  the  aggregate  for  the  year  equalled  1,000,- 
000,000  tons,  having  a  value  of  $20,000,000,000.  For  the  transfer 
of  the  title  of  such  tonnage  two  sets  of  instruments,  as  has  been 
shown,  were  used :  one  of  bills  for  its  movement,  in  gross,  from  the 
producer  to  the  merchant ;  and  one  of  notes  and  credits  issued  in 
the  discount  of  such  bills  for  its  distribution,  piece  by  piece,  from 
merchant  to  consumer.  The  amount  of  symbolic  money,  merchants' 
bills  for  distribution  in  gross,  and  the  notes  and  credits  issued  by 
banks  and  bankers  for  distribution,  piece  by  piece,  employed  in  the 
movement  of  merchandise  from  producers  to  consumers  for  the  year, 
in  the  United  States,  and  performing  so  far  all  the  functions  of 
metallic  money,  equalled  $40,000,000,000,  no  metallic  money 
directly  interposing  except  in  the  form  of  subsidiary  coins. 

The  provision  of  symbolic  money  by  banks  and  bankers  in  the 
United  States,  September  30,  1892,  according  to  the  Comptroller 


SYMBOLIC    MOXEY.  7 

of  the  Currency,  equalled  $3,100,943,227,  as  follows:  Deposits 
with  National  banks,  $1,775,251,128;  with  State  banks,  $648,- 
513,809;  with  Trust  companies,  $411,654,996;  with  private  banks 
and  bankers,  $93,091,148;  notes  of  National  banks,  October  31, 
1892,  $172,432,146.  The  whole  arose  out  of  the  discount  of  bills 
to  the  amount  of  $3,217,738,732,  as  follows  :  Discounts  by  National 
banks,  $2,153,498,826;  by  State  banks,  $654,654,490;  by  Loan 
and  Trust  companies,  $330,174,726  ;  by  private  bankers,  $79,310,- 
684.  If  it  be  assumed  that  the  bills  discounted  were  drawn  for 
periods  averaging  fifty  days,  the  total  amount  under  discount  for  the 
year  was  very  nearly  $20,000,000,000,  a  sum  equalling  very  nearly 
the  value  of  the  merchandise  moving,  in  gross,  during  the  year,  from 
producer  to  consumer.  Interest,  at  the  rate  of  4  per  cent.,  upon 
a  sum  of  metallic  money  equal  to  the  provision  of  the  symbolic 
money,  the  notes  and  credits  of  banks  and  bankers,  would 
amount  to  $124,000,000  annually.  The  saving  effected  in  the 
matter  of  interest,  whatever  it  may  be,  is  by  no  means 
the  chief  advantage  resulting  from  the  substitution  of  symbolic 
for  metallic  money.  Were  metallic  money  to  interpose  in  all 
transactions,  the  expense,  inconvenience,  and  risk  attending 
its  care  and  movement  would  be  so  great  as  to  reduce  transac- 
tions in  all  commercial  countries  to  one-tenth  their  present 
volume.  Symbolic  money  is  so  much  more  convenient  in  use  that 
no  one,  not  even  the  warmest  advocate  of  silver  money  in  the 
United  States,  would,  if  he  could  get  the  former,  touch  a  dollar  of 
the  latter,  or  of  gold  even,  if  there  were  piles  of  it  as  high  as 
Pike's  Peak  at  every  station  on  every  line  of  railroad  between  the 
mining  districts  of  the  continent  and  the  Atlantic  coast.  He  would 
greatly  prefer  to  have  his  money  in  the  form  of  bits  of  paper  which 
he  could  carry  securely  on  his  person,  no  matter  the  amount  or 
value,  these  being  convertible  into  metallic  money  at  his  pleasure, 
or  into  any  other  form  of  merchandise,  to  be  held  and  cared  for  by 
others  without  cost  or  annoyance  to  himself  till  he  had  occasion  for 
their  use.  Metallic  has  given  place  to  symbolic  money  for  the  same 
reason  that  cowries  or  wampum  gave  place  to  copper,  copper  to 
silver,  and  silver  to  gold,  as  instruments  of  exchange.  It  is  hardly 
too  much  to  say  that  should  a  merchant  in  New  York  accompany 
an  order  for  10,000  barrels  of  flour  upon  a  manufacturer  in  Minne- 
apolis with  gold,  an  inquest  de  lunatico  inquirendo  would  soon  be 
held  to  determine  his  sanity. 


8  SYMBOLIC    MONEY. 

The  difference  between  the  notes  of  a  bank  and  credits  granted 
by  it  to  take  the  form  of  deposits  is  one  of  form  only.  The  notes, 
which  are  promises  to  pay  to  the  holder  an  equal  amount  of  coin, 
are  what  may  be  termed  subsidiary  paper  money  —  pocket  money, 
for  transactions  inconsiderable  in  amount ;  or  where  it  is  not  known 
that  the  person  offering  cheques  is  entitled  to  draw  them ;  or  where 
a  person  having  occasion  to  make  payments  has  not  his  cheque-book 
by  him.  The  tendency  everywhere  in  commercial  countries  is  to 
cheques  in  preference  to  notes,  from  the  greater  safety  and  con- 
venience of  their  use ;  cheques,  in  addition  to  their  use  as  money, 
serving  as  valuable  records  of  the  transactions  to  which  they  relate. 
The  proportion  in  amount,  or  value,  of  cheques  to  notes  in  the 
United  States,  were  the  issue  of  each  alike  free,  is  of  course  a  matter 
of  conjecture ;  but  it  is  probable  that  the  use  of  the  former  as 
money  would  be  tenfold  greater  than  that  of  the  latter,  the  propor- 
tion of  cheques  constantly  increasing  from  the  establishment  of 
banks  in  every  considerable  place  of  trade,  with  which  every  one  in 
affairs  opens  accounts  for  the  safe  keeping,  as  well  as  the  conven- 
ient use,  of  his  money.  As  it  is,  while  the  deposits  in  the  national 
banks  equalled  $1,775,251,128,  the  notes  of  the  same  in  circulation 
October  31,  1892,  equalled  only  $143,423,298.  At  the  same 
time,  however,  the  notes  of  the  United  States  —  greenbacks, 
equalled  $346,681,016  ;  silver  certificates  and  notes  circulating  as 
money,  $487,744,654  ;  the  two  equalling  $834,425,670.  Should  the 
United  States  ever  return  to  a  normal  and  healthy  monetary  system, 
its  notes,  except  such  as  might  be  used  as  instruments,  never  legal 
tender,  for  the  collection  of  the  revenues,  evidences  of  debt,  not 
of  capital,  would  be  wholly  retired. 

So  great  has  been  the  progress  in  the  instrument,  symbolic  money, 
by  which  the  exchanges  of  all  commercial  countries  are  now  carried 
on,  that  metallic  money,  except  in  the  form  of  subsidiary  coins, 
is  almost  wholly  discharged  from  use.  When  it  interposes,  and  then 
only  in  inconsiderable  amounts,  it  is  in  the  discharge  of  balances 
arising  between  nations  and  widely  separated  districts  of  the  same 
country,  and  between  banks  and  bankers,  issuers  of  symbolic  'money, 
for  distribution  from  hand  to  hand.  Its  chief  use  is  in  the  dis- 
charge of  balances  arising  between  the  latter.  If  all  bills  discounted 
represented  merchandise  certain  to  be  taken  for  consumption  within 
the  period  in  which  they  were  to  mature,  and  if  all  had  the  same 
time  to  run,  balances  arising  between  issuers  of  symbolic,  or  bank 


SYMBOLIC    MONEY. 


9 


money,  would  be  only  nominal.  The  amount  daily  arising  between 
issuers  of  such  money  in  the  United  States  is  well  shown  in  the  oper- 
ations of  Clearing  Houses1  now  established  in  every  considerable 

1  Statement  showing  the.  number  of  Banks,  members  of  the  Neiv  York  Clearing-  House 
established  in  1853;  their  aggregate  capital'  clearings'  balances;  average  daily  clearings; 
daily  balances,  and  percentage  of  balances  to  clearings  at  the  same,  for  thirty-nine  years , 
1854  to  iSQ2,  inclusive. 


1 

-a   . 

V 

"1 

13 

i 

M 

e 
i 

Ms- 
Hi 

111 

sgir 

lip 

=  Js  «; 

J2  u  to 

> 

x~ 

Q 

0 

B  ~  = 

<     13 

<j-S  5.5 

B*"~ 

|54 

5° 

$47,044,900 

$5,759,455,987 

$297,411,494 

$19,104,505 

$988,078 

#5-2 

48 

48,884,180 

5,362,912,098 

289,694,137 

17,412,052 

940,565 

5-4 

856 

So 

!      52,883,700 

6,906,213,328 

384,714,489 

22,278,108 

1.079,724 

4.8 

1 

59 
46 

64,420,200 
67,146,018 

8,333,226,718 
4,756,664,386 

3i4J23&,'9ii 

26,968,371 
15,393,736 

1,182,246 
1,016,954 

859 

47 

67,921,714 

6,448,005,956 

363,984,693 

20,867,333 

1,777,944 

5-6 

860 

5° 

69,907,435 

7,321,143,057 

380,603,438 

23,401,757 

1,232,018 

1861 

So 

68,900,605 

5,915,742,758 

353,383,944 

19,260,520 

1,151,088 

6.0 

1862 
1863 
.864 

5° 
So 
49 

1 

68,375,820 
68,972,508 
68,586,763 
80,363,013 
82,370,200 

6,871,443,591 
14,868,597,849 
24,097,196,926 
26,932,384,342 
28,717,146,914 

415,530,331 
677,626,483 
885,719,205 
',035,765,108 
1,066,135,106 

22,237,682 
48,428,657 

77,984,455 
84,796,040 

93,54i,i95 

',344,758 
2,207,252 
2,866,405 
3.373.S2S 
3»472>753 

6.0 
4.6 

3-7 

4.0 

3-7 

1867 

58 

81,770,200 

28,675,129,472 

','44,963,451 

93,101,167 

3,717,414 

4.0 

1868 

59 

81,270,200 

28,484,288,637 

1,125,455,237 

92,182,164 

3,645,250 

4.0 

1869 

59 

82,720,200 

37,407,028,987 

1,120,318,308 

121,451,303 

3,637,397 

3-° 

1870 

61 

83,620,206 

27,804,539,406 

1,036,484,822 

90,274,479 

3,365,210 

3-7 

1871 
1872 

62 
61 

84,420,200 
84,420,200 

29,300,980,682 
33,844,369,568 

1,209,721,029 

1,428,582,707 

95,133,074 
109,884,317 

3,827,666 
4,636,632 

4.1 
4.3 

1873 
1874 

'875 

59 

59 
59 

83,370,200 
81,635,200 
80,455,200 

35,461,052,826 
22,855,927,636 
25,061,237,002 

',474,5oS,o25 
1,286,758,176 
1,408,608,777 

115,885,764 
74,692,574 
81.899,470 

4,818,654 
4,205,076 
4,693,297 

4.1 

1876 

59 

81,731,200 

21,397,274,247 

1,895,042,029 

79,349,428 

4,218,378 

5-9 

1877 

5» 

71,085,200 

23,289,243,701 

1,373,996,302 

76,358,176 

4,504,906 

5-9 

1879 

57 
59 

63,611,500 
60,800,200 

22,508,438,442 
25,178,770,691 

',307.843.857 
1,400,111,063 

73,555,988 
82,015,540 

4,274,000 
4,560,622 

5-8 
5-6 

1880 
iSSi 

8, 

60,475,200 
61,162,700 

37,182,128,621 
48,565,818,212 

1,516,538,631 
,776,018,162 

121,510,224 
159,232,191 

4,956,009 
5,823,010 

4.1 

3-5 

1882 

61 

60,902,700 

46,552,846,161 

,595,000,245 

i5i,637,93S 

5,195,440 

3-4 

1883 

63 

61,162,700 

40,293,165,258 

,568,983,166 

132,5*3,307 

5,161,129 

3-9 

'i4 

61 

60,412,700 

34,092,037,338 

,524,930,994 

1  1  1  ,048,982 

4,967,202 

4-5 

1885 
1886 

64 

63 
64 

58,612,700 
59,312,700 
60,362,700 

25>  250,791,  44° 
33,374,682,216 

34,872,848,786 

»5  '  9^65  ,'385 
,569,627,325 

82,789,480 
109,067,589 
114,337,209 

4,247,069 
4,965,000 
5,142,316 

5-' 
4-5 
4-5 

1888 

63 

60,762,700 

30,863,686,609 

,570,198,528 

101,192,415 

5-1 

,889 

63 

60,762,700 

34,796,465,529 

,757,637,473 

114,839,820 

5lSoo',7S4 

5-° 

1890 
,891 
1892 

64 
63 
64 

60,812,700 
60,772,700 
68,233,500 

37,660,686,572 
34,053,698,770 
36,279,905,236 

,753,040,145 
.584,635,500 
,861,500,575 

123,074,139 
111,651,471 
118,561,782 

5,728,889 
5,  '95,526 
6,083,335 

g 

Total 

168,515,265 

{986,597,21  2,585 

143,410,277,328 

182,470,719 

t3,7o.,883 

t4-4 

f  Yearly  average  for  39  years.  J  Totals  for  39  years. 

The  Clearing-House  transactions  of  the  Assistant  Treasurer  (a  member  of  it),  of  the 
United  States  at  New  York,  for  the  year  ending  October  i,  1892,  were  as  follows  : 

Exchanges  received  from  Clearing  House $330,904,236  19 

Exchanges  delivered  to  Clearing  House 124,324,688  45 

Balances  paid  to  Clearing  House $206,579,547  74 

The  balances,  $206,579,547.74,  were  paid  to  the  Clearing  House  as  follows  : 

United  States  gold  certificates $83,355,000  oo 

United  States  Treasury  notes 75,275,000  oo 

Legal  tenders  and  change 47,949,547  74 


IO  SYMBOLIC    MONEY. 

place  of  trade.  The  exchanges  at  the  fifty-seven  Clearing  Houses 
in  the  United  States  in  1892  equalled  $61,017,839,067;  the  daily 
average  being  about  $200,000,000.  The  balances  daily  arising 
averaged  about  $16,000,000,  or  about  8  percent,  of  the  exchanges 
taking  place.  In  the  city  of  New  York  the  exchanges  at  the  Clear- 
ing House  for  1892  equalled  $36,279,905,236,  the  daily  average 
being  $118,561,782  ;  the  daily  balances,  $6,083,335,  a  sum  equal- 
ling 5.1  per  cent,  of  the  exchanges.  Clearing  Houses,  enforcing 
daily  settlements  between  all  their  members,  are  now  the  great 
correctives  to  any  tendency  to  over- issues  of  currency.  No  greater 
amount  of  metallic  money  (not  including  subsidiary  coin)  would  be 
required  in  the  internal  commerce  of  the  country,  equalling  $40,- 
000,000,000  annually,  than  that  now  required  at  the  Clearing 
Houses,  as  at  these  the  debtors  one  day  are  creditors  the  next, 
but  for  extraordinary  calls  to  which  issuers  are  exposed 
from  disturbances  arising  alike  in  our  domestic  and  foreign 
trade.  The  amount  of  reserves,  gold,  held  by  the  Bank  of 
England,  ending  with  1892,  for  its  own  issues,  as  well  as  for  those 
of  all  other  issuers  in  the  United  Kingdom,  the  aggregate  averaging 
$3,000,000,000,  equalled  about  ^23, 000,000, l  or  $115,000,000. 
London,  the  Clearing  House  of  the  world,  is  first  called  upon  to 
supply  the  lack  of  capital  in  every  part  of  it.  It  has  to  consider 
quite  as  much  the  political  and  military  as  the  financial  and  indus- 
trial situation  the  world  over.  When  peace  is  menaced  the  first 
care  of  the  belligerents  is  to  provide  plentiful  supplies  of  gold,  the 
only  kind  of  money  to  be  depended  upon  as  having  the  same  value 
in  all  countries  and  in  all  emergencies.  Were  the  monetary  system 
of  the  United  States  a  normal  one,  a  sum  not  exceeding  one-half 
that  maintained  by  the  Bank  of  England,  the  greater  part  to  be  held 
in  New  York,  the  Clearing  House  of  the  country,  would  be  ample 
as  reserves  for  all  the  issuers  of  symbolic  money  within  it,  and  for 
the  discharge  of  all  balances  arising  in  the  domestic  and  foreign 


^•Statement  showing'  the  amount  in  pounds 
the  first  day  of  January  of  each  year,  for  tw 

Year.                                                    Amount. 
1883               ...                  -                     /22.7CC  nnn 

of  gold  held  by  the  Bank  < 
enty  years,  ending  with  i8qz 

Year. 
iSSS     
1889     -  .    .    .    . 
1890     

•)f  England  near 

Amount. 
.  .£19,455,412 
.    .    .      19,712,368 
•    •    •      17,782,374 
23,465,834 
.    ,    .      22,468,478 

1884      

20,360,721 

IsSy     '.'.'.'.'.'.'. 

20,826,856 
19,929,836 
20,238,539 

1891     

1892     

The  average  amount  at  the  beginning-  of  each  year  was  .£20,659,541,  the  average  amount 
held  being  somewhat  larger,  but  not  exceeding  that  given. 


SYMBOLIC    MONEY.  II 

trade  of  a  country  subject  to  very  few  of  the  disturbing  influences 
to  which  Great  Britain  is  exposed.  The  United  States  is  usually, 
and  always,  with  a  proper  monetary  system,  would  be,  the  credi- 
tor nation.  With  a  proper  monetary  system  and  with  Clearing 
Houses  in  all  the  great  business  centres,  it  would  be  impossible  that 
there  should  be  any  considerable  fluctuations  in  trade,  or  that  any 
large  balance  should  be  found  due  abroad,  or  from  one  section  to 
another,  or  between  issuers  of  symbolic  money.  But  assuming  that 
the  reserves  of  the  issuers  of  symbolic  money  in  the  United  States 
should  be  in  the  same  ratio  to  their  liabilities  as  are  those  held  by 
the  Bank  of  England,  the  amount  required  by  them  would  not  ex- 
ceed $100,000,000,  to  increase  with  the  increase  of  the  exchanges. 
We  are  consequently  paying  an  enormous  penalty  for  our  unnatural 
and  fantastic  system.  According  to  the  report  of  the  director  of 
the  mint,  the  amount  of  gold  in  the  public  treasury,  November, 
1893,  was  $162,683,854;  in  the  hands  of  the  public,  $498,121,679; 
in  both,  $660,805,533.  The  amount  of  silver  in  the  public 
treasury  was  $488,318,428  ;  in  the  hands  of  the  public,  $58,834,149  ; 
in  both,  $547,152,577  ;  the  total  of  the  two  being  $1,207,958,110. 
It  will  thus  be  seen  that  we  are  carrying  as  dead  weight  more  than 
$1,000,000,000  in  the  form  of  silver  and  gold,  counting  silver  at  its 
nominal  value,  which,  as  capital,  might,  but  for  our  vicious  mone- 
tary system,  be  made  the  basis  of  new  industries,  increasing  vastly 
our  production  of  merchandise  and  with  it  the  amount  of  the  sym- 
bolic money  of  the  country. 

As  the  issues  of  a  bank  made  in  the  discount  of  bills  of  exchange 
are  ordinarily  returned  to  it  through  the  purchase  for  consumption 
of  the  merchandise  they  represent,  its  share  capital  which  con- 
stitutes its  reserves  may  be  wholly  paid  in  in  bills,  a  portion  of 
them  to  mature  in  season  to  provide  the  coin  necessary  to  take  in 
such  of  their  issues  as  are  not  returned  to  it  in  the  manner  de- 
scribed. If  pressed  for  gold  this  can  ordinarily  be  had  by  a  pledge 
of  bills  the  constituents  of  which  have  ordinarily  the  value  of  an 
equal  nominal  amount  of  gold.  No  small  portion  of  treatises  upon 
money  is  taken  up  with  the  discussion  of  the  proportion  of  reserves 
in  coin  to  liabilities,  such  proportion,  in  the  books,  to  be  all  the 
way  from  a  quarter  to  one-half  of  liabilities,  plenty  of  illustrations 
being  offered.  The  proportion  depends  upon  the  constituents  of 
the  bills  discounted.  If  it  be  merchandise,  the  liabilities  of  the 


12  SYMBOLIC    MONEY. 

issuer  are  returned  without  any  intervention  on  his  part.  If  not  mer- 
chandise, the  borrower  ordinarily  will  be  unable  to  meet  his  loans. 
No  empyrical  rule,  consequently,  can  be  laid  down.  Little  or  no 
coin  may  be  necessary  to  the  entire  solvency  of  a  bank.  In  case  of 
a  suspension  on  a  large  scale  provision  for  resumption  is  not  neces- 
sarily that  of  coin,  but  that  the  bills  of  a  bank  should  represent 
merchandise,  the  ordinary  subjects  of  consumption.  In  such  case 
no  greater  amount  of  gold  may  be  required  when  banks  resume  than 
when  they  suspended  specie  payment.  Resumption  is  not  the  taking 
in  in  coin  of  the  liabilities  of  a  bank,  but  that  its  issues  should  repre- 
sent merchandise  having  a  value  in  gold  equal  to  their  nominal 
amount.  The  process  of  resumption  on  an  extended  scale  may  not 
involve  the  use  or  movement  of  a  dollar  of  coin.  The  capital 
of  new  banks  is  ordinarily  paid  in  in  the  form  of  cheques  upon 
other  banks  against  deposits  which  grow  out  of  the  discount 
of  merchants'  bills.  Every  one  possessed  of  merchandise  is  capa- 
ble of  issuing  instruments  for  its  distribution  entitled  to  circulate 
at  the  par  of  gold.  Such  methods  have  been  frequently  resorted  to, 
but  are  no  longer  necessary,  banks  standing  ready  to  discount  all 
bills  given  for  merchandise,  supplying  a  higher  form  of  currency 
than  that  issued  by  a  single  producer  whose  credit,  no  matter  his 
means,  is  limited  to  a  narrow  circle. 

As  already  shown,  the  only  difference  between  bills  discounted 
and  the  notes  and  credits  issued  in  their  discount,  both  being  alike 
at  the  option  of  the  holder  payable  in  coin,  is  in  the  time  in  which 
they  are  respectively  to  mature ;  the  bills  being  payable  on  such 
time  as  is  assumed  to  be  necessary  for  the  distribution  for  consump- 
tion of  their  constituent ;  the  notes  and  credits  presently,  it  being 
assumed  that  provision  therefor  has  been  made  in  the  merchan- 
dise put  upon  the  market  which  the  bills,  and  notes  and  credits, 
issued  in  their  discount,  alike  represent.  If  no  such  provision  is 
made  the  issuer  has  to  supply  the  merchandise  in  the  form  of  the 
universal  equivalent.  Credit,  as  expressed  by  bills,  is  the  necessary 
condition  of  the  issue  of  symbolic  money.  But  for  it  metallic 
money,  as  an  equivalent,  would  be  required  alike  for  the  movement 
of  merchandise  in  gross  as  for  its  distribution,  piece  by  piece,  to 
consumers.  It  is  the  essential  quality  of  symbolic  money  that  pre- 
vious to  its  issue  provision  be  made  for  its  return  to  the  issuer  in 
the  merchandise  which  such  money  represents.  If  the  public  are 


SYMBOLIC    MONEY.  13 

solvent  the  banks  must  be,  although  unable  to  meet  upon  the  in- 
stant any  considerable  demand  for  specie.  If  called  upon  they  may 
have  no  alternative  but  to  suspend  payment.  Their  bills  paid,  no 
new  loans  being  made,  they  would  again  have  all  their  capital  in  hand 
in  its  original  form.  Under  such  conditions,  suspension  of  specie 
payments  may  be  a  matter  of  a  few  days  only.  The  consumption 
of  merchandise  would  go  on  as  before,  the  liabilities  on  either  side 
being  discharged  by  mutual  offset  until  they  are  wholly  retired.  A 
suspension  of  specie  payments  may  have  hardly  any  other  injurious 
effect  than  to  arrest  for  a  time  the  operations  of  production  and 
trade.  It  is  a  common  thing  to  speak  of  the  issues  of  banks  as 
"  paper  money  based  upon  specie."  The  exact  reverse  is  the  fact. 
Paper  money  is  based,  not  upon  specie,  but  upon  merchandise,  and 
is  retired  thereby,  specie  interposing,  as  a  rule,  not  between  pro- 
ducer and  consumer,  but  only  between  issuers  of  symbolic  money. 

The  proceeds  of  bills  discounted  are  ordinarily  taken  in  the  form 
of  credits  to  remain  on  deposit  with  the  issuers,  to  be  drawn  ac- 
cording to  the  wants  of  those  in  whose  favor  they  are  granted. 
Notes,  subsidiary  paper  money,  find  their  way  into  circulation  chiefly 
by  means  of  cheques  against  deposits  for  the  payment  of  wages, 
current  expenses,  and  the  like.  As  they  are  drawn  for  specific  pur- 
poses they  presently  return  in  greater  part  to  the  issuers,  a  small 
amount  as  pocket  money  remaining  in  the  hands  of  the  public. 

As  the  capital  of  banks  when  first  established  may  be  largely  paid 
in  in  bills,  these  supplying  in  their  payment,  which  may  be  demanded 
in  coin,  the  reserves  proper  to  be  held,  to  the  extent  that  the  pro- 
ceeds of  loans  made  by  them  are  undrawn,  these  may  be  treated,  in 
part,  as  reserves  for  new  loans.  Issues  so  made  do  not  inflate  the 
currency,  as  they  have  behind  them  the  proper  constituent  for 
their  redemption.  The  owners  of  undrawn  proceeds  of  loans  well 
understand  the  use  that  is  to  be  made  of  them  and  do  not  object, 
the  banks  being  strengthened  instead  of  weakened  thereby.  When 
demanded  in  large  sums,  all  that  the  banks  have  to  do  is  to  call  in 
their  loans,  or  negotiate  new  ones  for  themselves,  payable  in  coin, 
for  gold  is  always  to  be  had  at  prices  not  ordinarily  much  above 
those  demanded  for  other  kinds  of  merchandise.  It  is  to  be  remem- 
bered that  nearly  all  the  issues  of  symbolic  money,  though  nominally 
payable  in  gold,  are  resolved  by  merchandise,  the  ordinary  subjects 


14  SYMBOLIC    MONEY. 

of  consumption.  The  holder  of  a  barrel  of  flour  is  just  as  potential 
in  money  as  Jthe  possessor  of  gold  who  has  to  purchase  and  consume 
flour  as  the  condition  of  existence.  Gold,  however,  has  the  advan- 
tage that  it  is  not  subject  to  decay,  while  the  uses  to  which  it  can  be 
put  are  always  certain  to  maintain  its  value  the  world  over.  It  has 
the  same  significance  everywhere.  There  can  be  no  overstock  of 
it,  while  flour  may  be  largely  in  excess  of  demand,  the  consumption 
of  it  on  a  large  scale  being  restricted  to  a  few  races.  Ordinarily, 
however,  the  supply  of  merchandise  for  consumption,  and  of  gold, 
keep  an  even  pace,  so  that  the  holder  of  gold  has  no  advantage 
over  a  holder  of  merchandise,  even  of  the  kind  which,  to  maintain 
its  value,  must  be  presently  consumed. 

The  greater  part  of  the  issues  of  banks  and  bankers  in  all  com- 
mercial countries  is  based  upon  the  undrawn  proceeds  of  loans. 
On  the  3oth  of  September,  1892,  the  loans  of  the  National  banks  of 
the  United  States  equalled  $2,153,498,829.  Their  own  loanable 
capital  equalled  $1,029,077,041,  made  up  of  $686,573,115  of  share 
capital,  $238,871,425  of  surplus  funds,  and  $103,632,501  of  un- 
divided profit.  Their  deposits  equalled  $1,775,251,128.  Their 
loans  consequently  exceeded  their  own  means  by  $1,124,421,788. 
The  loans  and  discounts  of  the  State  banks  equalled  $654,654,490 ; 
of  Trust  companies,  $310,174,726;  of  private  banks  and  bankers, 
$69,310,687;  the  total  being  $1,034,139,903.  The  share  capital  of 
the  State  banks  equalled  $233,751,171;  the  surplus  funds  and  un- 
divided profits,  $90,358,080.  The  capital  of  the  Trust  companies 
equalled  $80,645,972;  their  surplus  and  undivided  profits, 
$60,768,148.  The  capital  of  the  private  banks  and  bankers 
equalled  $34,590,227  ;  their  surplus  funds  and  reserved  profits, 
$11,259,164.  The  total  loanable  capital  of  the  three  equalled 
$510,372,762.  Their  loans  in  excess  of  their  capital  equalled 
$5I3?767,i4I-  Their  deposits  equalled  $1,153,264,953,  made  up 
of  $648,513,809  with  State  banks,  $411,659,996  with  Trust  com- 
panies, and  $93,091,148  with  private  banks  and  bankers.  The  loans 
of  all  classes  of  issuers  equalled  $3,187,637,732,  a  sum  $1,648,187,- 
929  in  excess  of  their  loanable  capital,  amounting  to  $1,539,649,- 
903.  Their  deposits  equalled  $2,928,516,081.  By  the  means 
described  the  whole  available  capital  of  the  country  is  made  the 
basis  of  reproduction,  not  a  dollar  that  can  be  spared  remaining 
unused.  The  advantage  inures  chiefly  to  workmen,  as  their 


SYMBOLIC    MONEY. 


wages  are  in  ratio  to  the  amount  of  capital  employed,  while  the 
prices  of  all  articles  of  consumption  are  reduced  in  like  ratio.1 

As  all  issues  of  currency  properly  made  are  retired  automatically 
and  within  brief  periods  by  the  consumption  of  their  constituent, 
their  denomination  or  amount  is  to  be  suited  to  the  means  or  wants 
of  the  humblest  as  well  as  the  largest  consumers.  There  is  the  same 
reason  for  the  issue  of  notes  of  one  dollar  as  of  ten  or  fifty  dollars. 
No  bank,  however,  would  on  the  score  of  convenience  and  economy 
issue  notes  for  less  than  one  dollar.  It  is  often  urged  that  no 
notes  should  be  issued  for  less  than  ten  dollars,  in  order  to  force 
specie  into  use,  so  that  in  the  event  of  a  breakdown  in  paper  money 
the  people  shall  have  something  to  fall  back  upon.  The  same  reason 
might  be  used  against  the  use  of  cheques  of  less  amount  than  fifty 
dollars.  It  is  to  be  remembered  that  the  purpose  of  symbolic 
money  is  to  take  the  place  of  metallic  money,  which  is  to  be  wholly 
discharged  from  the  exchanges,  except  as  subsidiary  coins.  There 
can  be  no  more  inflation  with  a  symbolic  currency,  properly  issued, 
than  with  a  metallic  currency,  as  the  purpose  of  each  as  money  is 
to  reach  some  article  of"  consumption.  The  amount  of  specie  to  be 
held  is  a  matter  of  experience,  the  issuer,  where  the  capital  of  a  bank 
is  fully  paid,  always  inclining,  as  a  matter  of  caution,  to  an  excess,  as 
much  to  maintain  a  high  credit  as  to  be  always  prepared  for  any 
emergency.  With  a  proper  system  no  considerable  adverse  balance 
could  arise  in  the  foreign  trade  of  the  country,  as  the  instruments 
could  never  be  in  excess  of  the  means  of  expenditure. 

1  Statement  showing  the  number  ;  amount  of  share  capital ;  loans  and  discounts  ;  surplus 
funds  ;  undivided  profits,  and  deposits  of  the  National  banks  of  September  30,  i8q2,  and 
of  the  State  banks,  Loan  and  Trust  companies,  and  private  banks  and  bankers  at  the  close 
cf  the  fiscal  year  1892. 


Nation'albanks. 

State'  banks. 

168 
Loan  and  Trust 
companies. 

1,161 
Private  banks 
and  bankers. 

Share  capital  
Surplus  funds  
Undivided  profits  

$686,573,115 
238,871,425 
103,632,501 

$233,75i.i7i 
66,725,191 
23,632,989 

$80,645,972 
45,824,747 
15,943,401 

$32,590,227 
7,730,587 
3.528,577 

$1,029,077,041 

$324,109,351 

$142,414,120 

$43,849,391 

Loans  and  discounts  .  .  . 
Deposits  

2,153,498,829 

654,654,490 
648,513,809 

310,174,726 
411,659,996 

69,310,687 
93,091,148 

l6  SAVINGS    BANKS, 


SAVINGS    BANKS. 

In  addition  to  the  deposits  with  banks  and  bankers  which,  as  capi- 
tal, are  made  the  basis  of  increased  issues  of  symbolic  money,  are 
deposits  with  savings  banks,  the  accumulated  earnings,  or  reserves, 
of  those  who,  having  no  adequate  means  of  investing  their  earnings 
or  savings,  intrust  them  to  institutions  especially  equipped  for  such 
purpose.  As  the  deposits  with  savings  banks  are  ordinarily  made 
in  the  notes  of  banks  of  issue,  or  in  cheques  upon  the  same,  they 
represent  capital  in  a  form  fitted  to  serve  as  a  basis  of  reproduction, 
for  the  prosecution  of  enterprises  of  all  kinds,  or  for  permanent  in- 
vestment. Deposits  with  savings  banks,  as  with  banks  of  issue,  are 
payable  presently  in  gold,  as  an  undertaking,  or  guarantee,  that  the 
property  upon  which  they  are  loaned,  or  into  which  they  are  con- 
verted, has  a  value  equal  to  that  of  an  equal  amount  of  gold,  —  of 
the  universal  equivalent.  There  is  this  difference  between  deposits 
with  banks  of  issue  and  those  with  savings  banks.  The  former, 
arising  out  of  the  discount  of  bills,  are  used  as  the  instruments  for 
the  distribution  of  the  merchandise  which  such  bills  represent,  and 
are  retired  by  their  use.  If  not  returned  to  the  issuer,  through  the 
purchase  of  merchandise,  they  are  to  be  taken  in  by  paying  out 
a  corresponding  amount  of  specie.  However  issued,  they  are  cer- 
tain to  pass  into  the  hands  of  the  holders  of  merchandise  by  whom 
they  are  presently  deposited  in  a  bank  which,  if  not  the  issuer,  to 
strengthen  itself,  immediately  demands  from  the  issuers  payment  in 
specie.  On  the  other  hand,  deposits  in  savings  banks,  though  paya- 
ble on  demand  in  coin,  represent  accumulations  to  be  invested,  their 
owners  having  no  present  use  for  the  same.  As  they  will  be  drawn 
only  to  meet  the  occasional  wants  of  the  depositors,  the  aggregate 
amount,  with  a  healthy  state  of  affairs,  steadily  increases  so  that  the 
whole  mass  at  any  one  time  may  be  safely  treated  as  a  proper  sub- 
ject for  investment.  Of  course  in  the  event  of  disturbance  or  appre- 
hension there  may  be  runs  upon  savings  banks  for  specie,  to  be 
ordinarily  returned,  as  the  apprehension  subsides,  to  the  banks  from 
which  it  was  drawn,  or  to  some  other  institutions  of  the  kind.  As 
the  purpose  of  savings  banks  'is  to  invest  the  money  of  the  laboring 
classes,  or  of  those  who  cannot  well  invest  for  themselves,  and  as 
it  is  always  understood  that  the  deposits  are  to  be  invested  in  prop- 
erty which  cannot  be  immediately  converted  into  gold,  in  the  case 


SAVINGS    BANKS.  I  J 

of  a  run  upon  them  they  are  allowed  to  defer  payment  for  such  time 
as  is  assumed  to  be  necessary  for  the  conversion  of  their  assets.  The 
amount  of  deposits  in  all  the  savings  banks  of  the  United  States, 
September  30,  1892,  equalled  $1,712,769,626,  of  which  $705,777,- 
557  were  held  by  the  savings  banks  of  the  New  England  States,  the 
amount  averaging  $150  per  head  of  their  population.  As  in  these 
States  savings  banks  may  make  loans  to  manufacturing  corporations, 
they  are  of  great  aid  in  carrying  large  stocks  of  merchandise  for 
which  there  may  be  no  present  remunerative  demand,  as  the  money 
of  these  banks  for  such  purposes,  and  in  any  amounts,  can  be  had 
at  the  lowest  current  rates.  The  manufacturers  in  these  conse- 
quently have  a  great  advantage  over  those  in  other  States  who 
have  no  such  facility  for  borrowing.  In  the  State  of  New  York  the 
deposits  in  the  savings  banks  equalled  $588,425,421.  The  depos- 
its in  the  savings  banks  of  the  State  of  California  equalled  $127,- 
000,000.  Had  all  the  States  deposits  in  savings  banks  at  the  rate 
of  those  in  New  England,  the  total  for  the  country  would  reach 
$10,000,000,000.  There  are  few  manufacturing  establishments  and 
no  savings  banks  in  the  States  of  Mississippi  and  Texas,  which  may 
largely  account  for  their  hostility  to  interests  in  which  they  have 
little  or  no  share,  but  out  of  which  deposits  in  savings  banks  chiefly 
arise. 


MONEY    BY    LAW. 

There  are  two  kinds  of  money  by  law  —  a  debased  coinage,  and 
notes  payable  at  the  pleasure  of  the  issuer ;  both  to  be  received  at 
their  nominal  value  in  the  discharge  of  debts.  The  latter  is  by  far 
the  more  dangerous  and  disastrous  expedient,  as  debased  coins 
have,  ordinarily,  no  other  support  than  the  value  of  the  metal  they 
contain ;  and  by  no  sophistry  can  one  be  persuaded  that  a  coin  of  a 
half  an  ounce  of  silver  has  the  value  of  a  full  ounce.  New  con- 
tracts will  be  made  in  them  only  at  the  value  of  the  metal  they 
contain.  So  soon,  therefore,  as  those  existing  are  discharged  the 
mischief  resulting  from  the  debasement  is  substantially  at  an  end. 

Notes  issued  to  serve  as  money  are  a  very  different  affair.  They 
may  be  issued  and  accepted  in  entire  good  faith,  being  promises 


1 8  MONEY    BY    LAW. 

of  a  government  for  which,  through  its  taxing  power,  the  whole 
means  of  its  people  are  assumed  to  be  pledged.  They  are  at  the 
outset  always  well  received  from  the  credit  attached  to  them,  from 
the  increased  activity  they  impart  to  all  the  operations  of  society, 
and  as  a  facile  expedient  for  meeting  any  great  emergency.  The 
occasion  of  their  issue  is  usually  one  which  has  roused  the  spirit  of 
the  people  to  the  highest  pitch,  so  that  little  attention  is  paid  to  any 
voice  of  warning,  the  great  mass  being  content  to  forego  present 
payment  for  the  good  of  the  cause,  confident  that,  the  crisis  passed, 
abundant  provision  for  their  redemption  will  be  made.  As  the 
community  among  whom  they  are  issued  is  impoverished  in  ratio 
to  their  amount,  as  they  are  instruments  in  excess  of  the  means  of 
expenditure,  each  succeeding  issue,  no  matter  how  great  has  been 
the  depreciation,  is,  consequently,  always  more  eagerly  welcomed 
than  the  preceding  one.  The  Continental  currency,  though  resting 
on  very  feeble  foundations,  the  joint  action  of  the  several  States  over 
which  Congress  had  no  control,  was  well  received,  and  circulated 
for  nearly  two  years  at  the  par  of  coin.  As  the  contest  was  pro- 
longed the  amount  was  necessarily  rapidly  increased,  prices,  from 
the  distrust  created,  being  inflated  in  far  greater  ratio.  Still  no  one 
hesitated  to  take  them  at  a  price,  as  the  greater  the  depreciation  the 
greater  the  gain,  should  it  turn  out  that  the  Government  would  event- 
ually provide  the  means  for  their  redemption.  They  were  as 
readily  taken  at  one-fifth  as  at  their  par  value.  Nothing,  however, 
could  arrest  the  decline  as  issue  followed  issue  till  the  amount 
equalled  $250,000,000.  At  last  their  worthlessness  became  so 
patent  that  they  fell  a  vast  and  lifeless  mass  to  the  ground.  The 
histories  of  the  time  are  full  of  pictures  of  the  sufferings  from  the 
extravagance  and  waste  necessarily  resulting  from  the  possession  of 
vast  sums  which,  at  a  rate,  served  all  the  purposes  of  money ;  and 
from  the  losses  to  the  holders  when  the  final  crash  came.  To 
greatly  aggravate  the  catastrophe  the  several  States  vied  with  the 
National  Government  in  vast  issues  of  notes  for  the  common  cause, 
all  of  which  shared  a  common  fate.  The  terrible  disasters  that  were 
suffered  were  held  up  as  warnings  for  all  time,  and  led  to  the  inser- 
tion in  the  Constitution  of  the  new  National  Government  of  an 
article  forbidding  the  States  to  emit  "bills  of  credit;"  that  is, 
notes  to  serve  as  money,  a  restriction  which  on  several  occasions 
has  been  held  to  be  as  imperative  upon  the  National  Government 


MONEY    BY    LAW.  19 

as  upon  those  of  the  States.  When  the  former  turned  its  attention 
to  the  subject  of  the  indebtedness  contracted  for  the  prosecution 
of  the  war,  it  provided,  by  way  of  recognition  only,  for  the  funding 
of  the  notes  at  the  rate  of  one  per  cent,  of  their  nominal  value, 
although  they  were  still  held  in  great  amounts  by  persons  who 
received  them  at  the  value  of  coin,  and  although  they  contributed 
essentially  to  the  success  of  the  great  cause.  Not  a  word  of  remon- 
strance was  raised  at  the  meagre  provision  made  for  them.  It  was 
felt  on  all  hands  that  no  plan  could  render  substantial  justice  to  the 
holders ;  that  the  notes  were  obligations  very  different  in  kind  from 
other  forms  of  indebtedness,  and  that  they  had  about  them  a  taint 
of  fraud  in  which  the  people  and  the  Government  were  alike 
involved.  They  were  consequently  virtually  repudiated,  while  debts 
contracted  by  the  ordinary  methods  were  funded  at  their  full  value, 
interest  added,  those  of  the  several  States  contracted  by  similar 
methods  for  the  common  cause  being  also  assumed,  no  provision 
whatever  being  made  for  their  notes  issued  to  serve  as  money. 

The  occasion  of  the  issue  of  notes  to  serve  as  money  by  our 
National  Government  was  the  war  of  the  Rebellion.  Although 
nearly  thirty-five  years  have  elapsed  since  their  issue,  we  have  not 
yet  had  the  hardihood  to  repudiate,  nor  the  manliness,  honesty,  or 
sense  to  retire  them.  They  still  remain,  in  vast  mass,  the  pest  and 
menace  of  the  nation.  An  explanation  of  their  issue  after  we  had 
become  a  great,  prosperous  and  powerful  nation,  possessed  of 
ample  means  for  every  emergency,  and  of  the  failure  to  retire  them, 
involves  a  monetary  history,  in  brief  compass,  of  the  United  States. 

BANK    OF    THE    UNITED    STATES. 

Upon  the  formation  of  the  National  Government  four  matters  of 
paramount  importance  were  committed  for  his  consideration  to 
General  Hamilton,  Secretary  of  the  Treasury :  Provision  proper 
to  be  made  for  the  public  debt  contracted  for  the  prosecution  of  the 
war;  a  protective  tariff;  the  coinage;  and  a  symbolic  money  as  the 
ordinary  instrument  of  exchange.  The  latter,  the  only  one  that  here 
concerns  us,  was  to  be  provided  by  a  Bank  of  the  United  States 
upon  which  three  prime  conditions  were  imposed  —  a  paid-up 
capital  (of  $10,000,000);  that  it  should  take  interest  at  a  rate  not 
exceeding  6  per  cent.,  and  that  it  should  deal  with  nothing  but  bills 
of  exchange  and  gold  and  silver  bullion.  A  double  guarantee  for 


2O  BANK    OF    THE    UNITED    STATES. 

the  safety  of  the  holders  of  its  issues  was  thus  provided  —  capital, 
the  preservation  of  which  would  be  the  first  care  of  its  managers ; 
and  loans  only  upon  evidences  of  merchandise  the  speedy  consump- 
tion of  which  would  return  its  issues  automatically,  and  without  any 
interposition  on  its  part.  It  might  make  losses  by  the  discount  of 
bills  for  the  constituent  of  which  there  was  no  present  demand,  such 
bills,  however,  to  bear  only  a  very  small  proportion  to  those  properly 
based,  and  which,  consequently,  were  certain  to  be  paid,  the  losses 
being  too  inconsiderable  to  affect  the  general  result.  The  exchanges, 
of  merchandise,  in  gross,  are  almost  wholly  effected  by  the  use  of 
bankers'  and  merchants'  bills,  the  holders  being  entitled  to  that 
which  they  represent,  or  to  the  proceeds  of  the  same.  There  is  no 
occasion  for  the  interposition  of  the  Government  in  such  issues. 
Those  receiving  the  same  can  easily  ascertain  whether  they  have  their 
proper  constituent.  As  those  who  are  to  receive  the  issues  of  banks, 
for  the  distribution  of  merchandise,  piece  by  piece,  are  further  removed 
from  the  original  transaction,  the  making  of  the  bills,  and  have  no 
means  of  ascertaining  the  adequacy  of  the  security  on  \vhich  they  are 
based,  it  is  proper  for  Government  to  see  that  it  be  adequate  by  pro- 
vision of  merchandise,  as  well  as  of  coin  reserves.  If  it  assumed  no 
such  duty  a  currency,  the  instruments  of  distribution,  piece  by  piece, 
would,  in  time,  equally  with  bills  of  exchange  for  its  distribution,  in 
gross,  be  issued  by  individuals  or  firms,  every  one  possessed  of 
capital  being  competent  to  issue  instruments  for  its  distribution. 
Such  currency  would  in  many  respects  be  superior  to  that  of  cor- 
porations from  the  greater  uniformity  of  issue,  more  abundant  pro- 
vision of  capital,  and  more  competent  and  trustworthy  management, 
the  chief  care  of  the  issuers  being  the  preservation  of  their  capital; 
and  as  no  issues  would  be  accepted  by  the  public  but  those  of  con- 
cerns of  undoubted  standing  and  solvency.  Railroads  could  be 
constructed  at  less  cost  and  operated  far  more  economically  by 
individuals  than  by  corporations,  from  the  keener  sense  of  personal 
interest  that  would  always  be  present,  but  such  advantages  have  to  be 
foregone  from  the  amount  of  capital  often  involved,  and  for  the  reason 
that,  being  institutions,  their  management  must  be  intrusted  to  bodies 
having  perpetual  existence.  The  advantages  of  banks  are  that  they 
are  the  only  means  by  which,  in  numerous  places,  capital  dedicated 
to  a  specific  object,  and  subject  to  few  risks,  can  be  combined.  A 
currency  alike  for  distribution  of  merchandise  in  gross,  and  piece  by 


BANK    OF    THE    UNITED    STATES.  21 

piece,  should  be  issued  where  it  is  produced.  As  the  issues  of  banks 
should  always  and  everywhere  have  the  same  value,  it  is  proper 
that  they  be  under  the  supervision  of  a  common  authority.  The 
newer  States  will  never,  in  such  matters,  adopt  proper  precautions, 
so  strong  with  them  will  be  the  temptation  to  create  banks  for  the 
purpose  of  borrowing  instead  of  lending  money. 

The  Bank  of  the  United   States  was  the  custodian  of  the  public 
revenues   which  were    made    receivable   in  its    notes    (never   legal 
tender).     As   it  received   in  the  ordinary  course    of  business,    for 
whatever  purpose  drawn,  the  notes  of  the  State  Banks,  of  which  great 
numbers  were  speedily  created,  it  had  to  account  to  the  Government 
at  the  par  of  coin  for  such  as  were  received  in  the  payment  of  the 
revenues.     The  bank  consequently,  for  its  protection,  enforced  daily 
settlements,  all  balances  on  either  side  being  payable  in  coin,  unless, 
as  the  stronger  institution,  it  extended  credits,  as  was  often  the  case, 
on  balances  in  its  favor.     By  such  provision  a  Clearing  House  was 
in    effect  established   of  which  every  bank  in   the  country,  as  the 
necessary  condition  for  securing  circulation  of  its  issues,  was,  whether 
willingly  or  not,  a  member.     With  such  provision  it  was  impossible 
that  there  could  be  any  inflation  of  the  currency,  or  that  any  con- 
siderable balances,  to  be  discharged  in  coin,  could  arise  either  in 
domestic  or  foreign  trade,  the  currency  in  use  being  wholly  one  of 
symbols,  every  issue  being  discharged  by  the  purchase  for  consump- 
tion of  its  constituent  within  a  period  of,  say,  sixty  days,  no  new 
issues  to  follow  but  to  represent  new  creations  of  merchandise.     As 
for  the  Government  it  never  had  the  custody  of  a  dollar  of  its  funds. 
All    accumulations    of    these,    beyond    its    immediate   wants,    were 
loaned  by  the  bank,  and  remained  in  the  channels  of  production 
and  trade.     The  coin  for  which  it  had  any  occasion  was  supplied 
by  the  bank.     All  remittances  abroad  on    its   account  were  made 
by  the  bills  of  the  bank  as  a  drawer  of  foreign  exchange,  to  cover 
which,  as  in  ordinary  affairs,  merchants'  bills  were  remitted.     The 
relation  of  the  Government  to  the  bank  was  precisely  that  of  any 
other  customer,  the  bink  loaning  the  balances,  for  which  they  had 
no  immediate  use,  of  all  its  customers.    Thus  at  the  very  beginning 
of  our   history,    and    for  the    first    time    in    history,    a    new    and 
gratifying    spectacle    was  presented    of  a    currency  always    perfect 
in  its  kind,  always  equal  in  amount  to  the  subjects  of  consumption, 
specie    being   discharged    from    the    ordinary    operations    alike    of 


22  BANK    OF    THE    UNITED    STATES. 

Government  and  people.  The  nation,  consequently,  at  the  very 
outset  entered  upon  a  career  of  prosperity  which,  considering 
the  lack  of  artificial  highways,  and  of  those  improvements  in  the 
mechanic  arts  which  have  since  changed  the  whole  face  of  society, 
was  without  a  parallel.  During  the  whole  period  of  its  existence 
there  was  never  a  moment  in  which  the  bank  was  pressed  for 
metallic  money,  nor  in  which  there  was  not  an  abundance  of  it  for 
every  use  to  which  it  might  be  called.  The  result  speedily  disarmed 
all  constitutional  objections  which  had  been  raised,  Mr.  Jefferson 
himself  when  he  came  to  the  Presidency  approving  an  act  for  the 
establishing  of  a  branch  in  New  Orleans  upon  the  acquisition  of 
Louisiana  from  France,  as  much  an  original  act  as  that  creating  the 
bank. 

Although  the  bank  had  been  the  instrument  for  the  creation  of  a 
currency,  perfect  in  its  kind,  by  means  of  which  capital  was  almost 
wholly  discharged  from  the  exchanges,  the  rates  of  interest  being 
thereby  greatly  reduced,  the  extension  of  its  charter,  strange  as  it 
may  seem,  was  refused.  As  the  greater  part  of  the  currency  had 
been  supplied  by  the  State  banks,  it  was  assumed  that  they  were 
competent  for  the  issue  of  all  that  was  required.  The  fact  was 
overlooked  that  their  currency  was  maintained  at  the  par  of  coin 
wholly  through  the  control  exercised  over  them  by  the  National 
Bank.  The  organized  opposition  came  from  these  institutions 
chafing  under  the  supervision  which  the  bank  exercised  over  them. 
Several  of  the  Eastern  States,  among  them  Massachusetts  and  Penn- 
sylvania, memorialized  Congress  against  the  extension  of  the  charter. 
There  was  still  a  lingering  opposition  to  it  on  constitutional  grounds. 

Upon  the  winding  up  of  the  bank  the  Government  from  necessity 
was  compelled  to  place  itself  in  the  same  relation  to  the  State  banks 
that  it  had  previously  occupied  to  that  of  the  United  States.  No 
sooner  was  it  seen  that  the  latter  was  to  go  into  liquidation  than  the 
former,  subject  to  no  adequate  control,  began  to  increase  largely 
their  issues  to  fill  the  vacuum  about  to  be  made  in  the  circulation. 
Great  numbers  of  new  banks  were  created  for  the  same  purpose,, 
The  object  of  the  establishment  of  the  Bank  of  the  United  States 
was  to  provide  a  currency  always  the  symbol  of  capital.  The  States 
left  to  themselves  were  certain  to  create  banks  the  issues  of  which 
were  to  supply  the  place  of  capital  instead  of  being  the  representa- 
tives of  it.  No  restrictions  consequently  were  imposed  as  to  their 


BANK    OF    THE    UNITED    STATES.  23 

loans.  Borrowers  were  always  eager  for  accommodations  which 
were  freely  extended,  as  great  numbers  of  banks,  without  capital, 
had  little  to  lose  but  much  to  gain  by  exchanging  their  issues,  bearing 
no  interest,  for  those  of  borrowers  bearing  interest,  and  often  at  a  high 
rate.  The  moment  therefore  that  the  strong  arm  of  the  National 
Bank  which,  for  its  own  preservation,  had  always  to  be  outstretched, 
was  withdrawn,  then  a  great  inflation  of  the  currency  was  the  imme- 
diate result.  So  long  as  distrust  was  not  aroused  there  was  little 
thought  of  demanding  coin  for  notes,  these  being  far  more  conven- 
ient in  use.  The  Continental  currency,  worthless  at  the  start,  cir- 
culated, as  has  been  shown,  for  nearly  two  years,  from  the  confidence 
felt  in  it,  at  the  par  of  coin. 

In  1812  came  the  war  with  Great  Britain.  For  its  prosecution 
the  Government  was  not  only  forced  to  increase  greatly  taxes  of  all 
kinds,  but  to  make  large  loans,  all  payable,  and  distributed,  by  means 
of  the  issues  of  the  State  banks.  Distrust  at  last  excited  led  to  a 
run  upon  them,  and,  in  1814,  the  greater  part  suspended  specie  pay- 
ments. Released  even  from  a  pretence  of  making  good  their  issues, 
these  were  so  enormously  increased  that,  in  1816,  according  to  the 
statement  of  Mr.  Calhoun,  in  a  speech  in  advocacy  of  a  new 
National  Bank,  they  reached  the  enormous  sum  of  $200,000,000,  a 
sum  more  than  sixfold  greater  than  the  aggregate  for  1811  when  the 
first  National  Bank  went  out  of  operation.  During  the  whole  period 
between  the  first  and  second  banks  the  Government  had  no  money 
but  the  issues  of  the  State  banks.  At  that  early  day  it  was  forced 
into  the  adoption  of  the  "  Pet  Bank  System,"  so  notorious  in  later 
times,  and  over  which  it  could  exercise  no  control.  There  was  no 
thought,  nor  was  there  any  possibility,  of  carrying  on  its  operations 
in  coin.  The  loans  negotiated  by  it,  and  payable  at  a  future  day  in 
coin,  equalled  nominally  $80,000,000.  The  aggregate  amount 
received  therefor  in  the  notes  of  the  banks  equalled  $68,000,000, 
its  securities  payable  in  coin,  commanding,  in  bank  notes,  only  85 
per  cent,  of  their  nominal  value.  From  the  rise  in  prices  due  to 
the  inflation  of  the  currency,  the  value,  in  coin,  of  the  articles  and 
services  which  the  Government  had  to  purchase  did  not  exceed 
$34,000,000.  The  total  loss  suffered  by  it  consequently,  from  a 
disordered  currency,  equalled  $48,000,000.  The  whole  subject 
was  carefully  considered  in  1830  by  a  Committee  of  Ways  and 
Means  of  the  House  of  Representatives,  of  which  Mr.  McDufifie,  of 


24 


BANK    OF    THE    UNITED    STATES. 


South  Carolina,  was  chairman,  which,  in  a  report  submitted  by  him, 
said : 

The  Government  borrowed  during  the  short  period  of  the  war  $80,000,000, 
at  an  average  discount  of  15  per  cent.,  giving  certificates  of  stock,  amounting  to 
$80,000,000,  in  exchange  for  $68,000,000,  in  such  bank  paper  as  could  be 
obtained.  Upon  the  very  face  of  the  transaction,  therefore,  there  was  a  loss  of 
$12,000,000,  which  would,  in  all  probability,  have  been  saved  if  the  Treasury 
had  been  aided  by  such  an  institution  as  the  Bank  of  the  United  States.  But  the 
sum  of  $68,000,000,  received  by  the  Government,  was  in  a  depreciated  currency, 
not  more  than  half  as  valuable  as  that  in  which  the  stock  given  in  exchange  for 
it  has  been  and  will  be  redeemed.  Here,  then,  is  another  loss  of  $34,000,000, 
resulting,  incontestibly  and  exclusively,  from  the  depreciation  of  the  currency, 
and  making,  with  the  sum  lost  by  the  discount,  $46,000,000.  —  History  of  the 
Bank,  p.  734. 

The  banks  suspended  specie  payment  in  August,  1814.  A  meet- 
ing of  Congress  was  presently  called  to  consider  the  situation.  On 
the  i  yth  of  October  following  the  Committee  of  Ways  and  Means  of 
the  House,  of  which  Mr.  J.  W.  Eppes,  of  Virginia,  was  chairman, 
"  having  under  consideration  the  support  of  public  credit,"  addressed 
a  communication  to  Hon.  A.  J.  Dallas,  Secretary  of  the  Treasury, 
"  in  order  to  afford  you  an  opportunity  of  suggesting  any  other,  or 
such  additional  provisions  as  may  be  necessary  to  revive  and  main- 
tain unimpaired  the  public  credit."  To  this  communication  Mr. 
Dallas,  on  the  1 7th  of  October,  replied  : 

The  condition  of  the  circulating  medium  of  the  country  presents  a  copious 
source  of  mischief  and  embarrassment.  The  recent  exportations  of  specie  have 
considerably  diminished  the  fund  of  gold  and  silver  coin  ;  and  another  con- 
siderable portion  of  that  fund  has  been  drawn,  by  the  timid  and  the  wary,  from 
the  use  of  the  community,  into  the  private  coffers  of  individuals.  On  the  other 
hand,  the  multiplication  of  banks  in  the  several  States  has  so  increased  the 
quantity  of  paper  currency  that  it  would  be  difficult  to  calculate  its  amount,  and 
still  more  difficult  to  ascertain  its  value,  with  reference  to  the  capital  on  which  it 
has  been  issued.  But  the  benefit  of  even  this  paper  currency  is,  in  a  great 
measure,  lost,  as  the  suspension  of  payments  in  specie,  at  most  of  the  banks,  has 
suddenly  broken  the  chain  of  accommodation  that  previously  extended  the  credit 
and  the  circulation  of  the  notes  which  were  emitted  in  one  State  into  every 
State  of  the  Union.  It  may,  in  general,  be  affirmed,  therefore,  that  there 
exists,  at  this  time,  no  adequate  circulating  medium  common  to  the  citizens  of 
the  United  States.  The  moneyed  transactions  of  private  life  are  at  a  stand,  and 
the  fiscal  operations  of  the  Government  labor  with  extreme  inconvenience.  It  is 
impossible  that  such  a  state  of  things  should  be  long  endured  ;  but,  let  it  be 
fairly  added,  that,  with  legislative  aid,  it  is  not  necessary  that  the  endurance. 


BANK    OF    THE    UNITED    STATES.  25 

should  be  long.  Under  favorable  circumstances,  and  to  a  limited  extent,  an 
emission  of  treasury  notes  would,  probably,  afford  relief  ;  but  treasury  notes  are 
an  expensive  and  precarious  substitute,  either  for  coin  or  for  bank  notes,  charged 
as  they  are  with  a  growing  interest,  productive  of  no  countervailing  profit  or 
emolument,  and  exposed  to  every  breath  of  popular  prejudice  or  alarm.  The 
establishment  of  a  national  institution,  operating  upon  credit,  combined  with 
capital,  and  regulated  by  prudence  and  good  faith,  is,  after  all,  the  only  efficient 
remedy  for  the  disordered  condition  of  our  circulating  medium.  While  accom- 
plishing that  object,  too,  there  will  be  found,  under  the  auspices  of  such  an 
institution,  a  safe  depository  for  the  public  treasure,  and  a  constant  auxiliary  to 
the  public  credit.  But,  whether  the  issues  of  a  paper  currency  proceed  from  the 
national  treasury,  or  from  a  national  bank,  the  acceptance  of  paper  in  a  course 
of  payments  and  receipts  must  be  forever  optional  with  the  citizens.  The  ex- 
tremity of  that  day  cannot  be  anticipated  -when  any  honest  and  enlightened  states- 
man will  again  venture  upon  the  desperate  expedient  of  a  tender  law.  —  History 
of  the  Bank,  p.  481. 

In  1815  a  bill  which  passed  both  Houses. of  Congress  for  the 
creation  of  a  new  bank  failed  to  receive  the  signature  of  the  Presi- 
dent, Mr.  Madison,  from  its  inadequacy  to  the  object  sought  to  be 
accomplished. 

The  condition  of  the  country  in  1816  had  become  so  desperate 
that  by  common  consent  the  only  escape  was  a  new  bank  upon  the 
model  of  the  old,  the  capital  to  be  increased  to  $35,000,000  that  it 
might  be  better  able  to  cope  with  the  difficulties  it  was  to  encounter. 
In  its  advocacy  Mr.  Calhoun,  who  had  charge  of  the  measure  in  the 
House,  said  : 

That  the  currency  of  the  nation  was  extremely  depreciated,  and  in  degrees 
varying  according  to  the  different  sections  of  the  country,  all  would  assent. 
That  this  state  of  the  currency  was  a  stain  on  the  public  and  private  credit  and 
injurious  to  the  morals  of  the  community  was  so  clear  a  position  as  to  require  no 
proof.  There  were,  however,  other  considerations  arising  from  the  state  of  the 
currency,  not  so  distinctly  felt  nor  so  generally  assented  to.  The  state  of  our 
circulating  medium  was  opposed  to  the  principles  of  the  Federal  Constitution. 
The  power  was  given  to  Congress  by  that  instrument  in  express  terms  to  regulate 
the  currency  of  the  United  States.  In  point  of  fact,  that  power,  though  given  to 
Congress,  is  not  in  their  hands.  The  power  is  exercised  by  banking  institutions 
no  longer  responsible  for  the  correctness  with  which  they  manage  it.  Gold  and 
silver  have  disappeared  entirely;  there  is  no  money  but  paper  money,  and  that 
money  is  beyond  the  control  of  Congress.  No  one  who  referred  to  the  Constitu- 
tion could  doubt  that  the  money  of  the  United  States  was  intended  to  be  placed 
entirely  under  the  control  of  Congress.  The  only  object  the  framers  of  the  Con- 
stitution could  have  had  in  view  in  giving  to  Congress  the  power  "  to  coin  money, 
regulate  the  value  thereof,  and  of  foreign  coin,"  must  have  been  to  give  a  steadi- 


26  BANK    OF    THE    UNITED    STATES. 

ness  and  fixed  value  to  the  currency  of  the  United  States.  The  state  of  things 
at  the  time  of  the  adoption  of  the  Constitution  afforded  an  argument  in  support 
of  such  construction.  There  then  existed  a  depreciated  paper  currency  which 
could  only  be  regulated  and  made  uniform  by  giving  a  power  for  that  purpose  to 
the  general  government.  I  contend,  therefore,  taking  into  view  the  prohibition 
against  the  States  issuing  bills  of  credit,  that  there  was  a  strong  presumption  this 
power  was  intended  to  be  exclusively  given  to  Congress.  There  was  no  provision 
in  the  Constitution  by  which  States  were  prohibited  from  creating  the  banks 
which  now  exercise  this  power;  but  banks  were  then  but  little  known.  There 
was  but  one,  the  Bank  of  North  America,  with  a  capital  of  only  $400,000  ;  and 
the  universal  opinion  was  that  bank  notes  represented  gold  and  silver,  and  that 
there  could  be  no  necessity  to  prohibit  banking  institutions  under  this  impression, 
because  their  notes  always  represented  gold  and  silver,  and  they  could  not  be 
multiplied  beyond  the  demands  of  the  country.  I  draw  the  distinction  between 
banks  of  deposit  and  banks  of  discount,  the  latter  of  which  were  then  but  little 
understood  —  and  their  abuse  not  conceived  until  demonstrated  by  recent  experi- 
ence. No  man  in  the  convention,  much  talent  and  wisdom  as  it  contained, 
could  possibly  have  foreseen  the  course  of  these  institutions  ;  that  they  would 
have  multiplied  from  one  to  two  hundred  and  sixty  ;  from  a  capital  of  $400,000 
to  $80,000,000  ;  that  from  being  consistent  with  the  provisions  of  the  Constitu- 
tion and  the  exclusive  right  of  Congress  to  regulate  the  currency  they  would  be 
directly  opposed  to  it;  that,  so  far  from  their  credit  depending  on  their  punctu- 
ality in  redeeming  their  bills  with  specie,  they  might  go  on,  ad  infinitum,  in  vio- 
lation of  their  contracts,  without  a  dollar  in  their  vaults.  There  has,  indeed, 
been  an  extraordinary  revolution  in  the  currency  of  the  country.  By  a  sort  of 
under-current  the  power  of  Congress  to  regulate  the  money  of  the  country  has 
caved  in,  and  upon  its  ruin  have  sprung  up  those  institutions  which  now  exercise 
the  right  of  making  money  for  and  in  the  United  States  ;  for  gold  and  silver  are 
not  the  only  money,  but  whatever  is  the.  medium  of  purchase  and  sale,  in  which 
bank  paper  alone  is  now  employed,  and  has,  therefore,  become  the  money  of  the 
country. 

A  change  great  and  wonderful  has  taken  place,  which  divests  you  of  your 
rights  and 'turns  you  back  to  the  condition  of  the  Revolutionary  War,  in  which 
every  State  issued  "bills  of  credit  "  which  were  made  a  legal  tender  and  were  of 
various  value. 

This,  then,  is  the  evil.  We  have,  in  lieu  of  gold  and  silver,  a  paper  medium, 
unequally  but  generally  depreciated,  which  affects  the  trade  and  industry  of  the 
nation,  which  paralyzes  the  national  arm,  which  sullies  the  faith  both  public  and 
private  of  the  United  States,  —  a  paper  no  longer  resting  on  gold  and  silver  as  its 
basis.  We  have,  indeed,  laws  regulating  the  currency  of  foreign  coin  ;  but  they 
are,  under  present  circumstances,  a  mockery  of  legislation,  because  there  is  no 
coin  in  circulation.  The  right  of  making  money  —  an  attribute  of  sovereign 
power,  a  sacred  and  important  right — is  exercised  by  two  hundred  and  sixty 
banks,  scattered  over  every  part  of  the  United  States,  not  responsible  to  any 
power  whatever  for  their  issues  of  paper.  The  next  and  great  inquiry  was,  How 
was  this  evil  to  be  remedied?  Restore  these  institutions  to  their  original  use; 
cause  them  to  give  up  their  usurped  power ;  cause  them  to  return  to  their  legiti- 


BANK    OF    THE    UNITED    STATES.  2j 

mate  office  of  places  of  discount  and  deposif ;  let  them  be  no  longer  mere  paper 
machines;  restore  the  state  of  things  which  existed  anterior  to  1813,  which  was 
consistent  with  the  just  policy  and  interests  of  the  country  ;  cause  them  to  fulfil 
their  contracts  ;  to  respect  their  broken  faith  ;  resolve  that  everywhere  there  shall 
be  an  uniform  value  to  the  national  currency.  Your  constitutional  control  will 
then  prevail. 

In  the  United  States,  according  to  the  best  estimation,  there  were  not,  in  the 
vaults  of  all  the  banks,  more  than  $15,000,000  of  specie,  with  a  capital  amount- 
ing to  about  $82,000,000;  hence  the  cause  of  the  depreciation  of  bank  notes  — 
the  excess  of  paper  in  circulation  beyond  that  of  specie  in  their  vaults.  This 
excess  was  visible  to  the  eye,  and  almost  audible  to  the  ear;  so  familiar  was  the 
fact,  that  this  paper  was  emphatically  called  trash,  or  rags.  According  to  esti- 
mation, there  are  in  circulation  within  the  United  States  $200,000,000  of  bank 
notes,  credits,  and  bank  paper,  in  one  shape  or  other.  Supposing  $30,000,000 
of  these  to  be  in  possession  of  the  banks  themselves,  there  were  perhaps 
$170,000,000  actually  in  circulation,  or  on  which  the  banks  drew  interest. — 
History  of  the  Bank  of  the  United  States,  p.  631. 

The  speech  of  Mr.  Calhoun  was  unsurpassed  alike  in  statement 
and  in  fervid  eloquence,  as  he  was  describing  scenes  of  disaster  wit- 
nessed on  every  side.  The  currency  of  the  country,  through  the 
neglect  of  the  Government,  had  completely  broken  down.  Under 
the  first  bank  it  was  all  that  could  be  desired.  A  similar  institution 
would  restore  the  situation.  The  Constitution  gave  to  Congress  the 
power  to  "regulate  the  value  of  money."  That  in  use,  and  to  be 
used,  was  not  coin,  but  paper.  Currency  of  coin  needed  no  regula- 
tion, its  value  being  determined  by  weight.  But  little  inconvenience 
would  be  felt  should  the  United  States,  as  it  often  had  done,  adopt 
the  coins  of  other  countries  instead  of  issuing  its  own,  as  the  former 
would,  for  all  the  purposes  for  which  metallic  money  was  used  in 
considerable  sums,  the  discharge  of  balances  arising  between  the 
issuers  of  symbolic  money,  and  in  international  trade,  be  just  as  con- 
venient as  the  latter.  The  commercial  value  of  bullion  always  regu- 
lates that  of  the  coins  into  which  it  is  converted.  The  only  function 
of  government  in  the  matter  of  coinage  is  to  affix  names  or  titles  to 
certain  weights  and  metals.  Its  great  duty  was  not  the  regulation  of 
the  coinage,  as  that  would  take  care  of  itself,  but  of  the  money  in 
use.  For  this  all  that  was  requisite  was  a  second  bank  upon  the 
model  of  the  first. 

The  new  bank  went  into  operation  March  3,  1816.  At  the 
time  there  were  260  State  banks,  the  issues  of  which  in  various 
forms  equalled  $200,000,000,  a  large  part  of  which  was  almost 


28  BANK    OF    THE    UNITED    STATES. 

wholly  valueless.  The  first  thing  for  the  bank  was  to  clear  the 
field  of  the  worthless  stuff  encumbering  it  by  assisting  such  banks  as 
were  solvent,  time  being  given,  and  by  driving  those  insolvent  out  of 
existence  by  supplying  a  sound  currency  adequate  to  the  wants  of  the 
people  who  always  prefer  the  best  instruments  to  given  ends.  It 
began  its  operations  by  assuming,  by  the  permission  of  the  Na- 
tional Government,  balances  to  the  amount  of  $10,804,112,  due 
from  the  State  banks  to  it,  allowing  long  credits  therefor.  In  its 
efforts  to  restore  the  currency  it  made,  as  was  inevitable,  heavy  losses 
on  every  side,  one  of  $1,600,000  by  the  mismanagement  of  the 
Baltimore  branch.  Upon  the  tumultuous  sea  upon  which  the  new 
institution  embarked,  it  barely  escaped  disastrous  shipwreck.  So 
excessive  were  its  losses  that  for  the  first  thirteen  years  of  its  exist- 
ence its  dividends  averaged  only  4.88  per  cent.,  against  nearly  twice 
that  rate  by  the  first  bank,  which,  when  it  began  its  operations, 
had  a  clear  field  before  it.  It  was  not  until  1820  that  affairs  in  the 
Northern  and  Eastern  States  were  substantially  restored.  In  the 
Southern  States  a  large  number  of  banks  were  still  unable  to  resume. 
These  were  forced  out  of  existence  as  soon  as  the  national  one  was 
able,  through  its  branches,  to  supply  a  currency  adequate  in  amount, 
and  of  the  value  of  coin. 

In  1811  eighty-eight  State  banks  were  in  operation,  having  a  cap- 
ital of  $42,610,605,  and  a  note  circulation  of  $22,700,000.  The 
deposits,  not  given  in  Mr.  Gallatin's  "  Considerations  on  the  Cur- 
rency," our  only  source  of  information,  did  not  probably  exceed 
$7,000,000,  the  total  of  the  two  being  about  $30,000,000.  In  1820 
the  number  of  banks  was  307,  the  nominal  capital  of  which  equalled 
$102,110,611,  their  notes  in  circulation  equalling  $40,641,574.  A 
great  number  of  these  were  subsequently  wound  up.  The  issues  of 
those  that  weathered  the  storm  did  not  probably  exceed  $40,000,- 
ooo,  an  amount  only  $10,000,000  greater  than  that  of  1811.  The 
increase  of  the  currency  from  $30,000,000  in  1811  to  $200,000,000 
in  1816,  and  its  reduction  to  $40,000,000,  before  order  was  fully 
restored,  were  attended  by  disasters  which  can  only  be  imagined,  not 
expressed.  If  the  National  Government  from  a  disordered  currency, 
in  transactions  equalling  nominally  $80,000,000,  made  a  loss  of 
$46,000,000,  how  vast  must  have  been  those  of  the  people,  with 
transactions  a  hundredfold  greater  !  The  value  in  coin  of  the  mer- 
chandise and  service  received  by  it,  $34,000,000,  was  a  trifling  sum 


BANK    OF    THE    UNITED    STATES.  29 

to  be  taken  in  the  form  of  domestic  products  for  the  purchase  of 
which  the  notes  received  were  used.  Had  the  bank  been  in  exist- 
ence such  products  could  have  been  far  more  easily  reached  by  a 
currency  purely  symbolic,  consequently  of  the  value  of  coin,  than 
by  one  greatly  inflated,  as  with  the  former  the  industries  of  the 
country  would  have  remained  undisturbed,  while  the  people,  from 
the  sense  of  patriotism  which  was  aroused,  would  have  promptly 
anticipated  every  want  of  the  Government.  A  vicious  currency  so 
impaired  the  vigor  and  energy,  as  well  as  the  morale,  of  the  people, 
that  the  period  between  the  two  banks  was  one  of  the  most  disas- 
trous and  discreditable  in  our  history.  Had  there  been  no  break 
between  them  there  would  have  been  no  suspension  of  specie  pay- 
ments, and  none  of  the  terrible  disasters  that  followed.  Such  was  the 
deliberate  judgment  of  Mr.  Gallatin,  Secretary  of  the  Treasury  from 
1802  to  1814  continuously,  a  most  competent  authority.  In  his 
"  Considerations  on  the  Currency  "  he  said : 

We  have  stated  all  the  immediate  and  remote  causes  within  our  knowledge 
which  concurred  in  producing  that  event  [the  suspension  of  the  specie  pay- 
ments]; and  although  the  effects  of  a  longer  continuance  of  the  war  cannot  be 
conjectured,  it  is  our  deliberate  opinion  that  the  suspension  might  have  been 
prevented,  at  the  time  when  it  took  place,  had  the  former  Bank  of  the  United 
States  been  still  in  existence.  The  exaggerated  increase  from  88  to  260  of 
State  banks,  occasioned  by  the  dissolution  of  that  institution,  would  not  have 
occurred.  That  bank  would,  as  before,  have  restrained  within  proper  bounds, 
and  checked  their  issues;  and,  through  the  means  of  its  offices,  it  would  have 
been  in  possession  of  the  earliest  symptoms  of  the  approaching  danger.  It 
would  have  put  the  Treasury  Department  on  its  guard;  both  acting  in  concert 
would  certainly  have  been  able  at  least  to  retard  the  event;  and,  as  the  treaty  of 
peace  was  ratified  within  less  than  six  months  after  the  suspension  took  place, 
that  catastrophe  would  have  been  altogether  avoided. 

We  have  already  adverted  to  the  unequivocal  symptoms  of  renewed  confidence 
shown  by  the  rising  value  of  bank  notes,  which  followed  the  peace.  This  would 
have  greatly  facilitated  an  immediate  resumption  of  specie  payments,  always 
more  easy,  and  attended  with  far  less  evils,  when  the  suspension  has  been  of  short 
duration.  The  banks  did  not  respond  to  that  appeal  made  by  public  opinion; 
nor  is  there  any  evidence  of  any  preparations,  or  disposition  on  their  part,  to  pay 
their  notes  in  specie,  until  after  the  act  to  incorporate  the  new  Bank  of  the 
United  States  had  passed.1 —  Considerations  on  the  Currency,  p.  46. 

1  In  his  "  Considerations  on  the  Currency  "  Mr.  Gallatin  gave  fche  names  of  165  banks 
which  failed,  chiefly  in  the  period  that  immediately  followed  the  attempt  to  resume  specie 
payments. 


3<D  BANK    OF    THE    UNITED    STATES. 

Order  restored,  the  country  again  entered  upon  a  period  of  pros- 
perity, which  rivalled  that  which  had  prevailed  throughout  the 
whole  period  of  the  first  bank,  the  currency  being  perfectly  adapted 
in  amount  and  kind  to  the  wants  of  the  people. 

In  1828  General  Jackson  was  elected  to  the  Presidency.  In  his 
first  annual  message,  December  8,  1829,  he  referred  to  the  bank  in 
the  following  terms : 

The  constitutionality  and  expediency  of  the  law  creating  the  Bank  of  the  United 
States  are  well  questioned  by  a  large  portion  of  our  fellow-citizens,  and  it  must 
be  admitted  by  all  that  it  has  failed  in  the  great  end  of  establishing  a  uniform 
currency. 

The  assault  of  General  Jackspn  upon  the  bank  came  upon  the 
nation  like  a  clap  of  thunder  from  a  clear  sky.  The  language  of 
a  madman,  it  was  received  with  amazement  rather  than  indignation. 
Under  the  two  banks  the  country  had  enjoyed  the  priceless  boon  of 
a  currency  perfect  in  its  kind,  by  means  of  which  capital  had  been 
almost  wholly  discharged  from  the  exchanges — a  currency  the 
nominal  value  of  which  always  measured  that  of  the  subjects,  whether 
domestic  or  foreign,  of  consumption,  and  with  which  no  consider- 
able balances  to  be  paid  in  coin  could  arise  either  in  foreign  or 
domestic  trade.  The  sentiment  everywhere  in  reference  to  the  bank 
was  one  of  profound  satisfaction  and  content. 

Not  a  moment  was  lost  in  reply.  On  the  loth  of  March,  so  soon 
as  it  could  be  appointed,  that  part  of  the  message  relating  to  the 
bank  was  referred  to  the  Committee  of  Ways  and  Means  of  the 
House,  consisting  of  Mr.  McDuffie,  of  South  Carolina,  Chairman ; 
Mr.  Verplanck,  of  New  York ;  Mr.  Dwight,  of  Massachusetts ;  Mr. 
Smyth,  of  Virginia ;  Mr.  Ingersoll,  of  Connecticut ;  Mr.  Gilmore, 
of  Pennsylvania,  and  Mr.  Overton,  of  Louisiana.  On  the  loth  of 
April  following,  the  committee  submitted  an  elaborate  and  unani- 
mous report  in  which  it  considered  chiefly  two  questions  —  ist, 
Has  Congress  the  power  to  incorporate  such  a  Bank  of  the  United 
States?  and,  2d,  Whether  it  is  expedient  to  establish  and  maintain 
such  an  institution  ?  In  support  of  the  constitutionality  of  the  bank 
the  committee,  among  other  things,  said  : 

If  the  concurrence  of  all  the  departments  of  the  Government  at  different 
periods  of  our  history,  under  every  administration,  and  during  the  ascendency  of 
both  the  great  political  parties  into  which  the  country  was  divided  soon  after 


BANK    OF    THE    UNITED    STATES.  £1 

the  adoption  of  the  present  Constitution,  shall  be  regarded  as  having  the  authority 
ascribed  to  such  sanctions  by  the  common  consent  of  all  well-regulated  commu- 
nities, the  constitutional  power  of  Congress  to  incorporate  a  bank  may  be 
assumed  as  a  postulate  no  longer  open  to  controversy.  In  little  more  than  two 
years  after  the  Government  went  into  operation,  and  at  a  period  when  most  of  the 
distinguished  members  of  the  Federal  Convention  were  either  in  the  executive  or 
legislative  councils,  the  Act  incorporating  the  first  Bank  of  the  United  States 
passed  both  branches  of  Congress  by  large  majorities,  and  received  the  deliberate 
sanction  of  President  Washington,  who  had  then  recently  presided  over  the 
deliberations  of  the  convention.  The  constitutional  power  of  Congress  to  pass 
the  Act  of  Incorporation  was  thoroughly  investigated,  both  in  the  executive 
Cabinet  and  in  Congress,  under  circumstances  in  all  respects  propitious  to  a  dis- 
passionate decision.  There  was  at  that  time  no  organization  of  political  parties; 
and  the  question  was,  therefore,  decided  by  those  who,  from  their  knowledge  and 
experience,  were  peculiarly  qualified  to  decide  correctly,  and  who  were  entirely 
free  from  the  influence  of  that  party  excitement  and  prejudice  which  would  justly 
impair,  in  the  estimation  of  posterity,  the  authority  of  a  legislative  interpretation 
of  the  constitutional  charter.  No  persons  can  be  more  competent  to  give  a  just 
construction  to  the  Constitution  than  those  who  had  a  principal  agency  in  framing 
it;  and  no  administration  can  claim  a  more  perfect  exemption  from  all  those 
influences  which  sometimes  pervert  the  judgments  even  of  the  most  wise  and 
patriotic,  than  that  of  the  Father  of  his  Country  during  the  first  term  of  his 
service.  .  .  . 

In  less  than  two  years  after  the  expiration  of  the  charter,  —  the  war  with 
Great  Britain  having  taken  place  in  the  meantime,  —  the  circulating  medium 
became  so  disordered,  the  public  finances  so  deranged,  and  the  public  credit  so 
impaired,  that  the  enlightened  patriot,  Mr.  Dallas,  who  then  presided  over  the 
Treasury  Department,  with  the  sanction  of  Mr.  Madison,  and  as  it  is  believed 
every  member  of  the  Cabinet^  recommended  to  Congress  the  establishment  of  a 
National  Bank,  as  the  only  measure  by  which  the  public  credit  could  be  revived 
and  the  fiscal  resources  of  the  government  redeemed  from  a  ruinous  and  other- 
wise incurable  embarrassment;  and  such  had  been  the  impressive  lesson  taught  by 
a  very  brief  but  fatal  experience,  that  the  very  institution  which  had  been  so 
recently  denounced  and  rejected  by  the  Republican  party,  being  now  recom- 
mended by  a  Republican  administration,  was  carried  through  both  branches  of 
Congress  as  a  Republican  measure  by  an  overwhelming  majority  of  the  Republican 
party.  It  is  true  that  Mr.  Madison  did  not  approve  and  sign  the  bill  which 
passed  the  two  Houses,  because  it  was  not  such  a  bill  as  had  been  recommended 
by  the  Secretary  of  the  Treasury,  and  because  the  bank  it  proposed  to  create  was 
not  calculated,  in  the  opinion  of  the  President,  to  relieve  the  necessities  of  the 
country.  But  he  premised  his  objections  to  the  measure  "  by  waiving  the  consti- 
tutional authority  of  the  Legislature  to  establish  an  incorporated  bank,  as  being 
precluded,  in  his  opinion,  by  repeated  recognitions,  under  varied  circumstances, 
of  the  validity  of  such  an  institution,  in  Acts  of  the  legislative,  executive,  and 
judicial  branches  of  the  government,  accompanied  by  indications,  in  different 
modes,  of  a  concurrence  of  the  general  will  of  the  nation."  Another  bill  was 
immediately  introduced;  and  would,  in  all  probability,  have  become  a  law,  had 


3  2  BANK    OF    THE    UNITED    STATES. 

not  the  news  of  peace,  by  doing  away  with  the  pressure  of  the  emergency,  induced 
Congress  to  suspend  further  proceedings  on  the  subject  until  the  ensuing  session. 
At  the  commencement  of  that  session,  Mr.  Madison  invited  the  attention  of 
Congress  to  the  subject;  and  Mr.  Dallas  again  urged  the  necessity  of  establishing 
a  bank,  to  restore  the  currency,  and  facilitate  the  collection  and  disbursement  of 
the  public  revenue;  and  so  deep  and  solemn  was  the  conviction  upon  the  minds 
of  the  public  functionaries  that  such  an  institution  was  the  only  practicable  means 
of  restoring  the  circulating  medium  to  a  state  of  soundness,  that,  notwithstanding 
the  decided  opposition  to  all  the  State  Banks  and  their  debtors,  —  and,  indeed, 
the  whole  debtor  class  of  the  community,  —  the  Act  incorporating  the  present 
Bank  of  the  United  States  was  passed  by  considerable  majorities  in  both  branches 
of  Congress,  and  approved  by  Mr.  Madison. 

In  reference  to  the  question  of  the  expediency  of  the  bank,  the 
committee  said  : 

The  question  really  presented  for  determination  is  not  between  a  metallic 
and  a  paper  currency,  but  between  a  paper  currency  of  uniform  value,  and  subject 
to  the  control  of  the  only  power  competent  to  its  regulation,  and  a  paper  currency 
of  varying  and  fluctuating  value,  and  subject  to  no  common  or  adequate  control 
whatever.  On  this  question,  it  would  seem  that  there  could  hardly  exist  a 
difference  of  opinion;  and  that  this  is  substantially  the  question  involved  in  con- 
sidering the  expediency  of  a  national  bank  will  satisfactorily  appear  by  a  compar- 
ison of  the  state  of  the  currency  previous  to  the  establishment  of  the  present 
bank  and  its  condition  for  the  last  ten  years. 

Human  wisdom  has  never  effected,  in  any  other  country,  a  nearer  approach  to 
uniformity  of  the  currency  than  that  which  is  made  by  the  use  of  the  precious 
metals.  If,  therefore,  it  can  be  shown  that  the  bills  of  the  United  States  Bank 
are  of  equal  value  with  silver  at  all  points  of  the  Union,  it  would  seem  that  the 
proposition  is  clearly  made  out  that  the  bank  has  accomplished  the  great  end  of 
establishing  a  uniform  and  sound  currency.  It  is  not  denied  that  the  bills  of  the 
mother  bank,  and  of  all  its  branches,  are  invariably  and  promptly  redeemed  in 
specie  whenever  presented  at  the  offices  by  which  they  have  been  respectively 
issued,  and  at  which,  upon  their  face,  they  purport  to  be  payable.  Nor  is  it 
denied  that  the  bills  of  the  bank,  and  of  all  its  branches,  are  equal  to  specie  in 
their  respective  spheres  of  circulation.  . 

But  it  is  impossible  to  exhibit  anything  like  a  just  view  of  the  beneficial  opera- 
tions of  the  bank  without  adverting  to  the  great  reduction  it  has  effected,  and  the 
steadiness  it  has  superinduced  in  the  rate  orf  the  commercial  exchanges  of  the 
country.  ...  It  has  been  already  stated  that  it  has  saved  the  com- 
munity from  the  immense  losses  resulting  from  a  high  and  fluctuating  state  of 
the  exchanges.  It  now  remains  to  show  its  effect  in  equalizing  the  currency. 
In  this  respect,  it  had  been  productive  of  results  more  salutary  than  were  antici- 
pated by  the  most  sanguine  advocates  of  the  policy  of  establishing  the  bank. 
It  has  actually  furnished  a  circulating  medium  more  uniform  than  specie.  This 
proposition  is  susceptible  of  the  clearest  demonstration.  If  the  whole  circulating 


BANK    OF    THE    UNITED    STATES.  33 

medium  were  specie,  a  planter  of  Louisiana  who  should  desire  to  purchase 
merchandise  in  Philadelphia  would  be  obliged  to  pay  one  per  cent,  either  for  a 
bill  of  exchange  on  this  latter  place,  or  for  the  transportation  and  insurance  of  his 
specie.  His  specie  at  New  Orleans,  where  he  had  no  present  use  for  it,  would  be 
worth  one  per  cent,  less  to  him  than  it  would  be  in  Philadelphia,  where  he  had  a 
demand  for  it.  But,  by  the  aid  of  the  Bank  of  the  United  States,  one-half  of  the 
expense  of  transporting  specie  is  now  saved  to  him.  The  bank  for  one-half  of 
one  per  cent,  will  give  him  a  draft  upon  the  mother  bank  at  Philadelphia,  with 
which  he  can  draw  either  the  bills  of  that  bank,  or  specie,  at  his  pleasure.  In 
like  manner,  the  bank  and  its  branches  will  give  drafts  from  any  point  of  the 
Union  to  any  other  where  offices  exist,  at  a  percentage  greatly  less  than  it  would 
cost  to  transport  specie,  and,  in  many  instances,  at  par.  If  the  merchant  or 
planter,  however,  does  not  choose  to  purchase  a  draft  from  the  bank,  but  prefers 
transmitting  bills  of  the  office  where  he  resides  to  any  distant  point,  for  commer- 
cial purposes,  although  these  bills  are  not  strictly  redeemable  at  the  point  to  which 
they  are  transmitted,  yet,  as  they  are  receivable  in  payment  of  all  dues  to  the 
Government,  persons  will  be  generally  found  willing  to  take  them  at  par,  and  always 
at  a  discount  much  less  than  would  pay  the  expense  of  transporting  specie.  The 
fact  that  the  bills  of  the  bank  and  its  branches  are  indiscriminately  receivable 
at  the  custom  houses  and  land  offices,  in  payment  of  duties,  and  for  the  public 
lands,  has  an  effect  in  giving  uniformity  to  the  value  of  these  bills. 

For  all  the  purposes  of  the  revenue,  it  gives  to  the  national  currency  that  per- 
fect uniformity,  that  ideal  perfection,  to  which  a  currency  of  gold  and  silver,  in  so 
extensive  a  country,  could  have  no  pretensions.  A  bill  issued  at  Missouri  is  of 
equal  value  with  specie  at  Boston,  in  payment  of  duties,  and  the  same  is  true  of 
all  other  places,  however  distant,  where  the  bank  issues  bills,  and  the  Government 
collects  its  revenue.  When  it  is,  moreover,  considered  that  the  bank  performs, 
with  the  most  scrupulous  punctuality,  the  stipulation  to  transfer  the  funds  of  the 
Government  to  any  point  where  they  may  be  wanted,  free  of  expense,  it  must  be 
apparent  that  the  committee  are  correct,  to  the  very  letter,  in  stating  that  the 
bank  has  furnished,  both  to  the  Government  and  to  the  people,  a  currency  of 
absolutely  uniform  value  in  all  places,  for  all  the  purposes  of  paying  the  public 
contributions,  and  disbursing  the  public  revenue.  And  when  it  is  recollected  that 
the  Government  annually  collects  and  disburses  more  than  $23,000,000,  those 
who  are  at  all  familiar  with  the  subject  will  at  once  perceive  that  bills,  which  are 
of  absolute  uniform  value  for  this  vast  operation,  must  be  very  nearly  so  for  all  the 
purposes  of  general  commerce.  —  History  of  the  Bank,  p.  735. 

A  matter  upon  which  the  committee  especially  dwelt  was  the  ser- 
vices which  the  bank  rendered  in  facilitating  the  exchanges,  in  gross, 
of  the  country.  Commerce  between  different  countries,  and  widely 
separated  districts  of  the  same  country,  must,  in  the  end,  be  recipro- 
cal in  amount,  or  value.  An  immense  advantage  consequently  is 
gained  when  the  indebtedness  contracted  between  two  points  can  be 
discharged  by  the  credits,  corresponding  in  amount,  arising  between 


34  BANK    OF    THE    UNITED    STATES. 

the  two,  avoiding  thereby  the  use  of  metallic  money  in  their  dis- 
charge. Between  New  York  and  New  Orleans  at  the  time  was  a 
very  large  reciprocal  movement  of  merchandise  represented  by  mer- 
chants' bills.  These,  drawn  in  the  commerce  between  them,  were, 
by  means  of  the  bank,  offset,  the  one  against  the  other,  so  that  no 
capital  in  the  form  of  coin  had  to  move,  except  in  the  case  of  excess 
of  indebtedness  on  one  side  or  the  other.  Where  the  bills  were 
equal  in  amount  the  price  of  exchange  between  the  two  cities  was 
nominal,  as  no  movement  of  coin  by  the  drawers  on  either  side  was 
involved.  This  illustration  will  serve  for  the  commerce  between  all 
cities  in  which  the  bank  had  branches,  as  was  the  case  at  all  points 
of  commercial  importance.  By  the  methods  described  the  bank 
constituted  a  clearing  house  for  the  drawers  of  merchants'  bills 
throughout  the  country,  precisely  as  it  had  established  a  clearing 
house  for  the  issuers  of  currency  for  the  distribution  of  merchandise 
piece  by  piece,  specie  only  interposing  to  make  good  balances,  never 
considerable  in  amount.  In  the  entire  absence  at  the  time  of  inter- 
nal means  of  communication,  except  that  of  rivers  never  to  be  relied 
on,  the  advantages  resulting  from  the  manner  in  which  the  exchanges 
in  gross  were  effected,  without  the  use  of  coin,  was  second  only  to 
those  by  which,  bj  means  of  its  issues  of  banks,  they  were  effected 
piece  by  piece. 

On  the  29th  of  March,  1829,  the  Committee  on  Finance  of  the 
Senate,  of  which  Mr.  Smith,  of  Maryland,  was  chairman,  the  other 
members  being  Mr.  Silsbee,  of  Massachusetts ;  Mr.  King,  of  New 
York ;  Mr.  Smith,  of  South  Carolina,  and  Mr.  Johnson,  of  Louisiana, 
to  which  was  referred  so  much  of  the  message  of  the  President  as 
related  to  the  bank,  submitted  a  unanimous  report,  from  which  the 
following  extracts  are  given  : 

The  currency  of  the  United  States,  in  its  relation  to  the  Government,  consists 
of  gold  and  silver,  and  of  notes  equivalent  to  gold  and  silver.     And  the  inquiry 
which   naturally  presents  itself  is,  whether  this  mass  of  currency  is  sound  and 
uniform  for  all  the  practical  purposes  of  the  Government,   and  the  trade  of  the 
Union.     That  it  is  so,  will  appear  from  the  following  facts  : 
ist,  The  Government  receives  its  revenue  from  — 
343  Custom  Houses. 

42  Land  Offices. 
8,004  Post  Offices, 

134  Receivers  of  Internal  Revenue. 
37  Marshals. 
33  Clerks  of  Courts. 


BANK    OF    THE    UNITED    STATES. 


35 


These,  with  other  receiving  officers,  who  need  not  be  specified,  compose  an 
aggregate  of  more  than  nine  thousand  persons,  dispersed  through  the  whole  of  the 
Union,  who  collect  the  public  revenue.  From  these  persons  the  Government 
has,  for  the  ten  years  preceding  January  i,  1830,  received  $230,068,855.17. 
This  sum  has  been  collected  in  every  section  of  this  widely  extended  country.  It 
has  been  disbursed  at  other  points,  many  thousand  miles  distant  from  the  places 
where  it  was  collected;  and  yet  it  has  been  so  collected  and  distributed,  without 
the  loss,  as  far  as  the  committee  can  learn,  of  a  single  dollar,  and  without  the 
expense  of  a  single  dollar  to  the  Government.  That  a  currency  by  which  the 
Government  has  been  thus  enabled  to  collect  and  transfer  such  an  amount  of 
revenue  to  pay  its  army  and  navy,  and  all  its  expenses,  and  the  national  debt,  is 
unsafe  and  unsound,  cannot  readily  be  believed,  for  there  can  be  no  surer  test  of 
its  sufficiency  than  the  simple  fact  that  every  dollar,  received  in  the  form  of  a 
bank  note,  in  the  remotest  parts  of  the  interior,  is,  without  charge,  converted  into 
a  silver  dollar,  at  every  one  of  the  vast  number  of  places  where  the  service  of  the 
Government  requires  its  disbursement.  The  Secretary  of  the  Treasury,  in  his 
report  of  the  6th  of  December,  1828,  declares  that,  during  the  four  years  preced- 
ing, the  receipts  of  the  Government  had  amounted  to  more  than  $97,000,000, 
and  that  "  all  payments  on  account  of  the  public  debt,  whether  for  interest  or 
principal;  all  on  account  of  pensions;  all  for  the  civil  list;  for  the  army;  for  the 
navy;  or  for  whatever  purpose  wanted,  in  any  part  of  the  Union,  have  been 
punctually  met."  The  same  officer  states  that  "it  is  the  preservation  of  a  good 
currency  that  can  alone  impart  stability  to  property,  and  prevent  those  fluctuations 
in  its  value,  hurtful  alike  to  individuals  and  to  national  wealth.  This  advantage 
the  bank  has  secured  to  the  community,  by  confining  within  prudent  limits,  its 
issues  of  paper." 

It  cannot  be  doubted  that,  throughout  the  whole  country,  the  circulating  bank 
notes  are  equal  to  specie,  and  convertible  into  specie.  There  may  be  and  prob- 
ably are  exceptions;  because  among  banks  as  among  men  there  are  some  who  make 
a  show  of  unreal  strength.  But  it  is  a  fact  so  familiar  to  the  experience  of  every  citi- 
zen in  the  community  as  to  be  undeniable  that,  in  all  the  Atlantic  and  commercial 
cities,  and  generally  speaking  throughout  the  whole  country,  the  notes  of  the 
State  banks  are  equal  to  gold  and  silver.  The  committee  do  not  mean  to  say  that 
there  may  not  be  too  many  banks,  or  that  insolvencies  do  not  occasionally  occur 
among  them;  but  as  every  bank  which  desires  to  maintain  its  character  must  be 
ready  to  make  settlements  with  the  Bank  of  the  United  States  as  the  agent  of  the 
Government,  or  be  immediately  discredited,  and  must  therefore  keep  its  notes 
equal  to  gold  and  silver,  there  can  be  little  danger  to  the  community  while  the 
issue  of  the  banks  is  restrained  from  running  to  excess  by  the  salutary  control  of 
the  Bank  of  the  United  States,  whose  own  circulation  is  extremely  moderate  com- 
pared with  the  amount  of  its  capital.  Accordingly,  the  fact  is,  that  the  general 
credit  of  the  banks  is  good,  and  that  their  paper  is  always  convertible  into  gold 
and  silver,  and  for  all  local  purposes  forms  a  local  equivalent  to  gold  and  silver. 
There  is,  however,  superadded  to  this  currency  a  general  currency  more  known, 
more  trusted,  and  more  valuable  than  the  local  currency  which  is  employed  in  the 
exchanges  between  different  parts  of  the  country.  These  are  the  notes  of  the 
National  Bank.  These  notes  are  receivable  for  the  Government  by  the  9,000 


36  BANK    OF    THE    UNITED    STATES. 

receivers  scattered  throughout  every  part  of  the  country.  They  are  in  fact  in  the 
course  of  business  paid  in  gold  or  silver,  though  they  are  not  legally,  or  necessa- 
rily, so  paid  by  the  branches  of  the  bank  in  every  section  of  the  Union.  In  all 
commercial  places  they  are  received  in  all  transactions  without  any  reduction  in 
value,  and  never,  under  any  circumstances,  does  the  paper  from  the  remotest 
branches  vary  beyond  a  quarter  of  one  per  cent,  in  its  actual  exchange  for  silver. 
Here,  then,  is  a  currency  as  safe  as  silver,  more  convenient  and  more  valuable 
than  silver;  which,  through  the  whole  western  and  southern  and  interior  parts 
of  the  Union,  is  eagerly  sought  in  exchange  for  silver;  which  in  those  sections 
often  bears  a  premium  paid  in  silver;  which  is,  throughout  the  Union,  equal  to 
silver  in  payment  to  the  Government  and  payments  to  individuals  in  business;  and 
which,  whenever  silver  is  needed  in  any  part  of  the  country,  will  command  it  with- 
out the  charge  of  the  slightest  fraction  of  a  percentage.  By  means  of  this  currency 
funds  are  transmitted  at  an  expense  less  than  in  any  other  country.  In  no  other 
country  can  a  merchant  do  what  every  citizen  of  the  United  States  can  do  — 
deposit,  for  instance,  his  silver  at  St.  Louis  or  Nashville  or  New  Orleans,  and 
receive  notes  which  he  can  carry  with  him  1,000  or  1,500  miles  to  the  Atlantic 
cities,  and  there  receive  for  them  an  equivalent  amount  of  silver  without  any 
expense  whatever ;  and  in  no  possible  event  an  expense  beyond  a  quarter  of  one  per 
cent.  If,  however,  a  citizen  does  not  wish  to  incur  the  anxiety  of  carrying  these 
notes  with  him,  or  to  run  the  hazard  of  the  mail,  he  may  instead  of  them  receive 
a  draft,  payable  to  himself  or  his  agent  alone,  so  as  to  insure  the  receipt  of  an 
equal  amount  at  an  expense  of  not  one-half,  and  often  not  one-fourth,  of  the 
actual  cost  of  carrying  the  silver.  The  owner  of  the  funds,  for  instance,  at  St. 
Louis  or  Nashville  can  transfer  them  to  Philadelphia  for  one-half  per  cent.;  from 
New  Orleans  generally  without  any  charge  at  all,  at  most  one-half  per  cent.; 
from  Mobile  from  par  to  one-half  per  cent.;  from  Savannah  at  one-half  per  cent.; 
and  from  Charleston  at  from  par  to  one-quarter  per  cent. 

This  seems  to  present  a  state  of  currency  approaching  as  near  to  perfection  as 
could  be  desired;  for  here  is  a  currency  issued  (through  branches)  at  twenty-four 
different  parts  of  the  Union,  obtainable  by  any  citizen  who  has  money  or  credit. 
When  in  his  possession,  it  is  equivalent  to  silver  in  all  its  dealings  with  the  9,000 
agents  of  the  Government  throughout  the  Union.  In  all  his  dealings  with  the 
interior  it  is  better  than  silver;  in  all  his  dealings  with  the  commercial  cities, 
equal  to  silver;  and  if,  for  any  purpose,  he  desires  the  silver  with  which  he  bought 
it,  it  is  at  his  disposal  almost  universally  without  any  diminution,  and  never  more 
than  a  diminution  of  one-quarter  per  cent.  It  is  not  easy  to  imagine,  it  is  scarcely 
necessary  to  desire,  any  currency  better  than  this. 

The  preceding  extracts  should  be  read  and  reread  by  every  one 
who  would  get  an  adequate  idea  of  the  nature,  and  extent  of  use,  in 
the  United  States,  of  symbolic  money,  rendered  such  by  a  stroke 
of  the  pen,  —  by  restrictions,  imposed  upon  a  single  institution,  the 
fiscal  agent  of  the  Government,  of  discounts  to  bills  of  exchange. 
For  the  distribution  of  merchandise  all  that  is  required  in  the  agent 
is  capacity  and  integrity,  supplemented  by  a  due  provision  of  reserves, 


BANK  OF  THE  UNITED  STATES.  37 

to  be  maintained  by  every  one  in  affairs.  The  producer  in  the  sale 
of  his  wares  does  not  demand  from  the  merchant,  the  distributor  of 
them,  any  security  other  than  his  bills  supported  by  a  proper  pro- 
vision of  reserves.  When  he  offers  them  for  discount  he  is  not  re- 
quired, for  their  payment,  to  put  up  any  security  additional  to  their 
constituent  supported  by  the  reserves  of  their  maker,  supplemented 
by  his  own.  The  provision  made  is  regarded  by  the  bank  dis- 
counting the  bills  as  ample  for  its  protection.  Losses  may  be 
suffered,  but  they  are  incident  to,  and  make  up  a  part  of,  the  charge 
or  cost  of  distribution.  Those  to  whom  the  issues  of  the  bank  dis- 
counting the  bills  are  paid,  as  money,  have  not  only  the  security 
described.  —  the  merchandise  represented  by  the  bills,  in  the  dis- 
count of  which  the  issues  they  hold  were  made,  supplemented  by 
the  reserves  of  all  the  parties  thereto,  all  alike  responsible  for  their 
payment,  —  but,  in  addition,  the  reserves,  ordinarily  ample,  of  the 
issuers.  They  are  entitled  to  the  additional  security,  being  removed 
one  step  farther  from,  and  having  little  knowledge  of,  the  transac- 
tions out  of  which  the  issues  they  are  to  receive  arose.  With  such 
cumulative  security,  the  issues  of  banks  are  properly  preferred  by 
all  as  money  to  gold.  All  provision  beyond  that  described  would  be 
a  needless  addition  of  capital  to  the  process  of  distribution,  the 
burden  to  be  borne  alike  by  producer  and  consumer. 

Such  was  the  currency,  alike  of  the  Government  and  the  people, 
under  the  two  banks.  With  it,  at  the  end  of  each  year,  the  Govern- 
ment, with  all  its  engagements  fulfilled  and  all  its  wants  supplied 
through  the  instrumentality  of  bank  money,  was  precisely  in  the 
position  in  which  it  would  have  been  had  metallic  money  been  used 
in  every  one  of  its  transactions  —  a  very  great  additional  advantage 
resulting  from  the  use  by  it  of  the  money  of  commerce,  that  of  the 
people,  instead  of  one  of  capital  involving  a  heavy  outlay  in  its  pro- 
vision as  well  as  for  its  transportation  and  safe  keeping.  With  no 
other  currency  on  any  considerable  scale  but  that  of  the  banks  with 
which  all  the  operations  of  the  Government  as  well  as  of  the  people 
were  carried  on  for  a  period  of  forty  years,  not  a  dollar  of  loss  was 
suffered  by  the  Government,  and  very  little  by  the  people  from  the 
failure  of  State  banks  which  supplied  the  greater  part  of  the  cur- 
rency. WTith  a  National  Bank  upon  the  model  of  the  old,  the  Gov- 
ernment might  to-day,  as  in  the  past,  with  entire  safety  turn  its  back 
wholly  upon  the  currency,  the  greater  part  of  it  to  be  supplied  by 


38  BANK   OF    THE    UNITED    STATES. 

other  banks,  State  or  National,  certain  that  the  issues  of  these,  to 
gain  circulation,  must  be  up  to  any  standard  it  might  provide  for 
a  single  institution  of  its  own,  the  custodian  of  its  revenues.  With 
such  an  institution  the  issues  of  all  other  banks,  State  or  National, 
with  no  other  security  behind  them  but  the  constituents  of  the  bills 
discounted,  and  of  the  ordinary  reserves  of  the  parties  thereto,  and 
of  the  issuers,  the  amount  of  such  reserves  to  be  left  to  the  discre- 
tion of  those  who  were  to  provide  them,  might  well  be  received  in 
the  payment  of  all  the  Government  revenues,  and  for  their  disburse- 
ment. Governments,  like  individuals,  use  money  as  an  instrument, 
not  as  an  end,  to  reach  food,  clothing,  material,  and  the  like ;  and  it 
may  well  accept  as  money  whatever  represents  the  objects  for  which 
it  has  use,  whether  it  be  issued  by  banks  of  the  States  of  Montana, 
Colorado,  Massachusetts,  or  New  York.  Subject  to  proper  restric- 
tions the  issues  of  all  would  have  the  same  value  and  be  as  proper 
for  Government  to  receive  in  the  payment  of  its  revenues,  and 
without  any  further  security  or  provision  for  their  solvency  than  those 
described,  as  gold.  To  require  more  would  be  disadvantageous 
alike  to  producer,  distributor  and  consumer,  including  the  Govern- 
ment. By  means  of  them  producers  of  cotton,  rice,  wheat,  sugar, 
tobacco,  corn,  and  fabrics  would,  in  effect,  pay  their  debts,  public  and 
private,  in  kind,  their  products  being  turned  into  money  at  their  own 
doors,  a  money  proper  to  be  accepted  by  every  one  in  affairs.  If 
what  one  receives  does  not  represent  merchandise  wanted,  it  can  be 
readily  exchanged  for  the  kind  that  does,  or,  in  default  of  this,  for 
the  universal  equivalent  in  which  all  issues  are,  in  terms,  liable  to  be 
discharged,  and  for  which  the  reserves  of  the  issuers  are  provided. 
With  such  a  currency,  should  any  apprehension  arise,  a  crisis  could 
not  be  precipitated,  as  the  monetary  and  industrial  situation  would 
be  perfectly  sound.  The  only  effect  would  be  an  arrest  of  operations 
until  the  sky  was  clear.  If  no  new  discounts  were  made,  one-half  of 
the  currency  outstanding,  symbolizing  articles  for  consumption, 
would  be  automatically  retired  by  their  purchase  for  use  within  a 
period  of,  say,  thirty  days.  The  pause  at  worst  would  be  but 
a  momentary  one,  as  the  alarm  could  not  be  due  to  any  disorder  in 
monetary  or  industrial  affairs ;  nor  could  it  create  a  run  upon  the 
banks  to  any  considerable  extent  for  their  reserves,  as  their  issues 
would,  in  great  measure,  be  in  the  hands  of  the  makers  of  their 
bills,  to  be  presently  used  in  their  payment. 


BAXK    OF    THE    UNITED    STATES.  39 

The  Government  is  exercised  for  the  welfare  of  the  people  ;  money 
that  is  good  enough  for  them  is  good  enough  for  those  charged  with 
its  administration.  .  In  affairs  it  is  a  part  of  the  people,  and  should 
take  its  chances  with  the  people.  Governments,  like  individuals, 
must,  in  affairs,  carry  on  their  operations  through  intermediaries. 
They  are  liable  to  lose  or  be  defrauded ;  still,  they  must  all  the  same 
be  employed.  But  no  guarantee  can  be  exacted  by  our  Government 
for  the  faithful  and  competent  discharge  of  the  duties  of  those 
employed  by  it  so  far-reaching  and  effective  as  those  exacted, 
through  the  instrumentality  of  an  institution  of  its  own  creation,  from 
banks  over  which  it  has  no  legislative  control.  The  Government 
should  adopt  the  methods  employed  by  the  people,  not  only  for  its 
own  convenience,  but  to  lessen  the  burdens  of  the  people.  It  should 
use  symbolic  money  precisely  as  it  uses  railroads.  The  two  con- 
trivances have  precisely  the  same  purpose.  Gold,  capital,  should  be 
as  much  discharged  from  its  operations  as  from  those  of  the  people. 
A  symbolic  currency,  made  such  by  the  oversight  of  the  Govern- 
ment, would  not  only  be  the  greatest  boon  alike  to  it  and  the 
people,  but  would  create  a  profound  sense  of  nationality,  long  lost ; 
would  be  evidence  of  a  paramount  and  beneficent  authority  pres- 
ent in  almost  every  transaction,  and  affording  the  strongest  possible 
guarantee  of  domestic  order,  and  of  the  integrity  of  the  national  life, 
so  frequently  and  often  rudely  assailed.  Its  tendency  to  the  creation 
of  a  strong  and  intelligent  sense  of  nationality  may  prove  the  great 
obstacle  to  its  provision.  A  government  which  could  establish  and 
maintain  it  would  be  regarded  as  possessed  of  power  capable  of 
subjecting  the  discordant  elements  included  in  our  system  to  its 
control.  The  refusal  to  extend  the  charter  of  the  second  bank  was 
upon  the  ground  that  its  creation  transcended  the  power  of  the 
National  Government.  There  can  be  no  doubt  but  that,  at  the  time, 
a  considerable  majority  of  the  people  of  the  United  States  were  in 
favor  of  subordinating  the  authority  of  the  National  Government  to 
that  of  the  States.  One  cause  of  discord  removed  by  the  Civil 
War,  others  of  still  greater  magnitude  may  come  to  the  front. 
For  such  abundant  elements  still  exists.  While  the  opportunity 
favors  no  time  should  be  lost  in  establishing  a  monetary  system 
which,  by  its  excellence,  would  create  such  a  sense  of  its  value  that 
the  authority  behind  it  would  at  all  hazards  be  upheld. 

The  picture  here  drawn  is  not  a  fancy  sketch,  but  history  through 


40  BANK    OF    THE    UNITED    STATES. 

a  period  of  forty  years,  now  as  much  forgotten  as  if  the  events  re- 
corded had  taken  place  before  the  construction  of  the  pyramids,  so 
completely  did  the  irruption  of  barbarians  into  the  fair  field  of 
civilization  efface,  even  from  memory,  the  most  remarkable  and 
beneficent  monument  of  the  fathers. 

Among  the  distinguished  citizens  who  replied  to  General  Jack- 
son's attack  upon  the  bank  was  Mr.  Albert  Gallatin,  who,  from  1802 
to  1814,  was  continuously  Secretary  of  the  Treasury,  serving  during 
the  greater  part  of  the  terms  of  Mr.  Jefferson  and  Mr.  Madison,  and 
for  the  greater  part  of  the  War  of  1812.  From  his  eminent  ability, 
the  long  period  in  which  he  presided  over  the  Treasury,  and  his  wide 
experience  in  affairs,  being  subsequently  president  of  a  bank  in  the-< 
city  of  New  York,  he  was  of  all  men  best  qualified  to  speak  author- 
itatively upon  the  subject  of  the  currency,  and  the  services  rendered 
by  the  bank  alike  to  the  government  and  the  people.  His  reply  was 
his  "  Considerations  on  the  Currency  and  the  Banking  System  of 
the  United  States,"  an  elaborate  monetary  history  of  the  country 
from  the  formation  of  the  Government  to  1830.  From  that  work 
extracts  have  been  given  designed  to  show  that,  had  the  bank  been 
in  operation,  suspension  of  specie  payments  in  1814  would  have 
been  averted.  Those  that  follow  relate  chiefly  to  the  constitution- 
ality, from  its  usefulness,  of  the  bank : 

The  Act  incorporating  the  bank  is  sanctioned  exclusively  by  that  clause  which 
gives  to  Congress  power  to  make  all  laws  which  shall  be  ' '  necessary  and 
proper  "  for  carrying  into  execution  any  of  the  powers  vested  in  the  government 
of  the  United  States.  .  .  . 

Experience  has  confirmed  the  great  utility  and  importance  of  a  Bank  of  the 
United  States  in  its  connection  with  the  Treasury.  The  first  great  advantage 
derived  from  it  consists  in  the  safe  keeping  of  the  public  moneys,  securing,  in 
the  first  instance,  the  immediate  payment  of  those  received  by  the  principal  col- 
lectors, and  affording  a  constant  check  on  all  their  transactions;  and  afterwards 
rendering  a  defalcation  in  the  moneys  once  paid,  and  whilst  nominally  in  the 
Treasury,  absolutely  impossible.  The  next,  and  not  less  important,  benefit  is  to 
be  found  in  the  perfect  facility  with  which  all  the  public  payments  are  made  by 
cheque  or  treasury  drafts,  payable  at  any  place  where  the  bank  has  an  office  ;  all 
those  who  have  demands  against  government  are  paid  in  the  place  most  conven- 
ient to  them;  and  the  public  moneys  are  transferred  through  our  extensive  terri- 
tory, at  a  moment's  warning,  without  any  risk  or  expense,  to  the  places  most 
remote  from  those  of  collection,  and  wherever  public  exigencies  may  require. 
From  the  year  1791  to  this  day,  the  operations  of  the  Treasury  have,  without 


BANK    OF    THE    UNITED    STATES.  4! 

interruption,  been  carried  on  through  the  medium  of  banks;  during  the  years  1811 
to  1816,  through  the  State  banks;  before  and  since,  through  the  Bank  of  the 
United  States.  Every  individual  who  has  been  at  the  head  of  that  department, 
and,  as  we  believe,  every  officer  connected  with  it,  has  been  made  sensible  of  the 
great  difficulties  that  must  be  encountered  without  the  assistance  of  those  institu- 
tions, and  of  the  comparative  ease  and  great  additional  security  to  the  public  with 
which  their  public  duties  are  performed  through  the  means  of  the  banks.  To 
insist  that  the  operations  of  the  Treasury  may  be  carried  on  with  equal  facility  and 
safety  through  the  aid  of  the  State  banks,  without  the  interposition  of  a  Bank  of 
the  United  States,  would  be  contrary  to  fact  and  experience.  That  great  assist- 
ance was  received  from  the  State  banks  while  there  was  no  other  has  always 
been  freely  and  cheerfully  acknowledged.  But  it  is  impossible  in  the  nature  of 
things  that  the  necessary  concert  could  be  made  to  exist  between  thirty  different 
institutions;  and  in  some  instances  heavy  pecuniary  losses,  well  known  at  the 
seat  of  government,  have  been  experienced.  To  admit,  however,  that  State  banks 
*are  necessary  for  that  purpose  is  to  give  up  the  question.  To  admit  that  banks 
are  indispensable  for  carrying  into  effect  the  legitimate  operations  of  government 
is  to  admit  that  Congress  has  the  power  to  establish  a  bank.  The  General  Gov- 
ernment is  not  made  by  the  Constitution  to  depend,  for  carrying  into  effect 
powers  vested  in  it,  on  the  uncertain  aid  of  institutions  created  by  other  authori- 
ties, and  which  are  not  at  all  under  its  control.  It  is  expressly  authorized  to 
carry  those  powers  into  effect  by  its  own  means,  by  passing  the  laws  necessary  and 
proper  for  that  purpose;  and  in  this  instance  by  establishing  its  own  bank,  instead 
of  being  obliged  to  resort  to  those  which  derive  their  existence  from  another 
source,  and  are  under  the  exclusive  control  of  the  different  States  by  which  they 
have  been  established. 

It  was  not  at  all  anticipated,  at  the  time  when  the  former  Bank  of  the  United 
States  was  first  proposed,  and  when  constitutional  objections  were  raised  against 
it,  that  bank  notes  issued  by  multiplied  State  banks,  gradually  superseding  the 
use  of  gold  and  silver,  would  become  the  general  currency  of  the  country.  The 
effect  of  the  few  banks  then  existing  had  not  been  felt  beyond  the  three  cities 
where  they  had  been  established.  The  States  were  forbidden  by  the  Constitution 
to  issue  bills  of  credit;  bank  notes  are  bills  of  credit  to  all  intents  and  purposes; 
and  the  State  could  not  do,  through  others,  what  it  was  not  authorized  to  do 
itself;  but  the  bank  notes,  not  being  issued  on  the  credit  of  the  States,  nor  guar- 
anteed by  them,  were  not  considered  as  being,  under  the  Constitution,  bills  of 
credit  emitted  by  the  States.  Subsequent  events  have  shown  that  the  notes  of 
State  banks,  pervading  the  whole  country,  might  produce  the  very  effect  which 
the  Constitution  had  intended  to  prevent,  by  prohibiting  the  emission  of  bills  of 
credit  by  any  State.  The  injustice  to  individuals,  the  embarrassments  of  govern- 
ment, the  depreciation  of  the  currency,  its  want  of  uniformity,  the  moral  neces- 
sity imposed  on  the  community,  either  to  receive  that  unsound  currency  or  to 
suspend  every  payment,  purchase,  sale,  or  other  transaction  incident  to  the  wants 
of  society,  all  the  evils  which  followed  the  suspension  of  specie  payments,  have 
been  as  great,  if  not  greater,  than  those  which  might  have  been  inflicted  by  a 
paper  currency,  issued  under  the  authority  of  any  State.  We  have  already 
adverted  to  the  several  provisions-  of  the  Constitution  which  gave  to  Congress 


42 


BANK    OF    THE    UNITED    STATES. 


the  right  and  imposed  on  it  the  duty  to  provide  a  remedy;  but  there  is  one  which 
deserves  special  consideration. 

Whatever  consequences  may  have  attended  the  suspension  of  specie  payments 
in  Great  Britain,  there  still  remained  one  currency  which  regulated  all  the  others. 
All  the  country  bankers  were  compelled  to  pay  their  own  notes,  if  not  in  specie, 
at  least  in  notes  of  the  Bank  of  England.  These  notes  were,  as  a  standard  of 
value,  substituted  for  gold;  and  if  the  currency  of  the  country  was  depreciated,  and 
fluctuating  in  value  from  time  to  time,  it  was  at  the  same  uniform  value  through- 
out the  country.  There  was  but  one  currency  for  the  whole,  and  every  variation 
in  its  value  was  uniform  as  to  places,  and  at  the  same  moment  operated  in  the 
same  manner  everywhere.  But  the  currency  of  the  United  States,  or,  to  speak 
more  correctly,  of  the  several  States,  varied  during  the  suspension  of  specie  pay- 
ments, not  only  from  time  to  time,  but  at  the  same  time  from  State  to  State,  and 
in  the  same  State  from  place  to  place.  In  New  England,  where  those  payments 
were  not  discontinued,  the  currency  was  equal  in  value  to  specie;  it  was  at  the 
same  time  at  a  discount  of  7  per  cent,  in  New  York  and  Charleston,  of  15  in 
Philadelphia,  of  20  and  25  in  Baltimore  and  Washington,  with  every  other  pos- 
sible variation  in  other  places  and  States. 

The  currency  of  the  United  States,  in  which  the  public  and  private  debts  were 
paid  and  the  public  revenue  collected,  not  only  was  generally  depreciated,  but 
was  also  defective  in  respect  to  uniformity.  Independent  of  all  the  other  clauses  in 
the  Constitution  which  relate  to  that  subject,  it  is  specially  provided,  1st,  that  all 
duties,  imposts,  and  excises  shall  be  uniform  throughout  the  United  States ; 
2d,  that  representative  and  direct  taxes  shall  be  apportioned  among  the  several 
States  according  to  their  respective  numbers,  to  be  determined  by  the  rule 
therein  specified;  and  that  no  capitation  or  other  direct  tax  shall  belaid,  unless  in 
proportion  to  the  enumeration.  Both  these  provisions  were  violated  whilst  the 
suspension  of  specie  payments  continued.  It  is  clear  that  after  the  quota  of  the 
direct  tax  of  each  State  had  been  determined  according  to  the  rule  prescribed  by  the 
Constitution,  it  was  substantially  changed  by  being  collected  in  currencies  differ- 
ing in  value  in  the  several  States.  It  is  not  less  clear  that  the  clause  which  pre- 
scribes a  uniformity  of  duties,  imposts,  and  excises  was  equally  violated  by 
collecting  every  description  of  indirect  duties  and  taxes  in  currencies  of  different 
value.  The  only  remedy  existing  at  that  time  was  the  permission  to  pay  direct 
and  indirect  taxes  in  treasury  notes.  But  those  notes  did  not  pervade  every  part 
of  the  country  in  the  same  manner  as  bank  notes;  they  were  of  too  high  denom- 
ination to  be  used  in  the  payment  of  almost  any  internal  tax;  they  were  liable 
also  to  vary  in  value  in  the  different  States;  and  they  could  operate  as  a  remedy 
only  as  long  as  their  depreciation  was  greater  than  that  of  the  most  depreciated 
notes  in  circulation. 

We  will  now  ask  whether,  independent  of  every  other  consideration,  Congress 
was  not  authorized  and  bound  to  pass  the  laws  necessary  and  proper  for  carrying 
into  effect  with  good  faith  those  provisions  of  the  Constitution,  and  whether  that 
could  or  can  be  done  in  any  other  manner  than  either  by  reverting  to  a  purely 
metallic,  or  by  substituting  a  uniform  paper  currency  to  that  which  had  proved  so 
essentially  defective  in  that  respect,  and  which  from  its  not  being  subject  to  one 
and  the  same  control  is,  and  forever  will  be,  liable  to  that  defect.  The  uniform- 


BANK    OF    THE    UNITED    STATES.  43 

ily  of  duties  and  taxes  of  every  description,  whether  internal  or  external,  direct 
or  indirect,  is  an  essential  and  fundamental  principle  of  the  Constitution.  It  is 
self-evident  that  that  uniformity  cannot  be  carried  into  effect  without  a  corre- 
sponding uniformity  of  currency.  Without  laws  to  this  effect,  it  is  absolutely 
impossible  that  the  taxes  and  duties  should  be  uniform,  as  the  Constitution  pre- 
scribes; such  laws  are  therefore  necessary  and  proper,  in  the  most  strict  sense  of 
the  words.  There  are  but  two  means  of  effecting  the  object, — a  metallic  or  a 
uniform  paper  currency.  Congress  has  the  option  of  either,  and  either  of  the 
two  which  may  appear  the  most  eligible  will  be  strictly  constitutional,  because 
strictly  necessary  and  proper  for  carrying  into  effect  the  object.  If  a  currency 
exclusively  metallic  is  preferred,  the  object  will  be  attained  by  laying  prohibitory 
stamp  duties  on  bank  notes  of  every  description,  and  without  exception.  If  it 
is  deemed  more  eligible,  under  existing  circumstances,  instead  of  subverting  the 
whole  banking-system  of  the  United  States,  and  depriving  the  community  of  the 
accommodations  which  bank  notes  afford,  to  resort  to  less  harsh  means;  recourse 
must  be  had  to  such  as  will  ensure  a  currency  sound  and  uniform  itself,  and  at  the 
same  time  check  and  regulate  that  which  will  continue  to  constitute  the  greater 
part  of  the  currency  of  the  country. 

Those  statements  also  show  that  the  Bank  of  the  United  States,  wherever  its 
operations  have  been  extended,  has  effectually  checked  excessive  issues  on  the 
part  of  the  State  banks,  if  not  in  every  instance,  certainly  in  the  aggregate. 
They  had  been  reduced,  before  the  year  1820,  from  sixty-six  to  less  than  forty 
millions.  At  that  time,  those  of  the  Bank  of  the  United  States  fell  short  of  four 
millions.  The  increased  amount  required  by  the  increase  of  population  and 
wealth  during  the  ten  ensuing  years  has  been  supplied  in  a  much  greater  pro- 
portion by  that  bank  than  by  those  of  the  States.  With  a  treble  capital,  they 
have  added  little  more  than  eight  millions  to  their  issues.  Those  of  the  Bank  of 
the  United  States  were  nominally  twelve,  in  reality  about  eleven  millions  greater 
in  November,  1829,  than  in  November,  1819.  The  whole  amount  of  the  paper 
currency  has,  during  those  ten  years,  increased  about  forty-five  percent.,  and  that 
portion  which  is  issued  by  the  State  banks  only  twenty-two  and  a  half  per  cent. 
We  have  indeed  a  proof,  not  very  acceptable  perhaps  to  the  bank,  but  conclusive 
of  the  fact,  that  it  has  performed  the  office  required  of  it  in  that  respect.  The 
general  complaints,  on  the  part  of  many  of  the  State  banks,  that  they  are  checked 
and  controlled  in  their  operations  by  the  Bank  of  the  United  States,  that,  to  use 
a  common  expression,  it  operates  as  a  screw,  is  the  best  evidence  that  its  general 
operation  is  such  as  had  been  intended.  It  was  for  that  very  purpose  that  the 
bank  was  established.  We  are  not,  however,  aware  that  a  single  solvent  bank 
has  been  injured  by  that  of  the  United  States,  though  many  have  undoubtedly 
been  restrained  in  their  operations  much  more  than  was  desirable  to  them.  This 
is  certainly  inconvenient  to  some  of  the  banks,  but  in  its  general  effect  is  a  public 
benefit  to  the  community. 

As  respects  the  past,  it  is  a  matter  of  fact  that  specie  payments  were  restored, 
and  have  been  maintained,  through  the  instrumentality  of  that  institution.  It 
gives  a  complete  guarantee  that  under  any  circumstances  its  notes  will  preserve 
the  same  uniformity  that  they  now  possess.  Placed  under  the  control  of  the 
General  Government,  relying  for  its  existence  on  the  correctness,  prudence  and 


44  BANK    OF    THE    UNITED    STATES. 

skill  with  which  it  shall  be  administered,  perpetually  watched  and  occasionally 
checked  by  both  the  Treasury  Department  and  rival  institutions,  and  without  a 
monopoly,  yet  with  a  capital  and  resources  adequate  to  the  object  for  which  it 
was  established,  the  bank  also  affords  the  strongest  security  which  can  be  given 
with  respect  to  paper,  not  only  for  its  ultimate  solvency,  but  also  for  the  unin- 
terrupted solvency  of  its  currency.  The  statements  we  have  given  of  its  pro- 
gressive and  present  situation  show  how  far  those  expectations  have  heretofore 
been  realized. 

The  manner  in  which  the  bank  checks  the  issues  of  the  State  banks  is  equally 
simple  and  obvious.  It  consists  of  receiving  the  notes  of  all  those  which  are 
solvent,  and  requiring  payment  from  time  to  time,  without  suffering  the  balance 
due  by  any  to  become  too  large.  We  think  that  we  may  say  that,  on  this, 
operation,  which  required  particular  attention  and  vigilance,  and  must  be  car- 
ried on  with  great  firmness  and  due  forbearance,  depends  almost  exclusively 
the  stability  of  the  currency  of  the  country. 

The  President  of  the  United  States  has  expressed  the  opinion  that  the  bank 
has  failed  in  the  great  end  of  establishing  a  uniform  and  sound  currency,  and 
has  suggested  the  expendiency  of  establishing  "  a  National  Bank,  founded  upon 
the  credit  of  the  Government  and  its  revenues."  He  has  clearly  seen  that  the 
uniformity  of  the  currency  was  a  fundamental  principle  derived  from  the  Consti- 
tution, and  that  this,  unless  the  United  States  reverted  to  a  purely  metallic  cur- 
rency, could  not  be  effected  without  the  aid  of  a  National  Bank.  But  it  appears 
to  us  that  the  objection  of  want  of  uniformity,  which  may  be  supported  in  one 
sense,  though  not  in  the  constitutional  sense  of  the  word,  applies  generally  to  a 
paper  currency,  and  not  particularly  to  that  which  is  issued  by  the  Bank  of  the 
United  States.  And  although  we  are  clearly  of  opinion  that  the  United  States  at 
large  are  entitled  to  the  pecuniary  profit  arising  from  the  substitution  of  a  paper 
for  a  metallic  currency,  we  are  not  less  convinced  that  this  object  cannot  be 
attained  in  a  more  eligible  way,  and  more  free  of  objections,  than  through  the 
medium  of  a  National  Bank,  constituted  on  the  same  principles  as  that  now 
existing.  (Page  78,  et  seq.} 

With  Mr.  Gallatin  the  constitutionality  of  the  bank  was  to  be 
inferred  from  its  usefulness  in  the  exercise  of  the  powers  expressly 
enumerated.  Whatever  was  useful  and  not  prohibited  was  con- 
stitutional. The  bank  was  of  great  use  as  the  custodian,  without 
expense  to  the  Government,  of  the  public  moneys.  It  was  of  great 
use  in  the  collection  of  the  revenues,  rendering  losses  by  collectors 
almost  impossible.  It  was  of  great  use  in  the  transfer  of  the  public 
moneys,  without  loss  or  expense  to  the  Government.  "From  1791 
to  this  day  the  operations  of  the  Treasury  have  been  carried  on 
through  the  medium  of  banks,  and  every  public  officer  has  been 
made  sensible  of  the  great  difficulty  that  must  be  encountered 
without  the  assistance  of  these  institutions."  The  great  assistance 


BANK  OF  THE  UNITED  STATES.  45 

received  from  the  State  banks  within  the  period  between  the  two 
banks  was  acknowledged,  although  heavy  losses  had  been  made  by 
employing  them.  As  banks  were  necessary  for  carrying  into  effect 
the  powers  vested  in  it,  the  Government  was  not,  for  carrying  into 
effect  those  granted,  to  depend  upon  the  uncertain  aid  of  in- 
stitutions created  by  other  authorities  and  over  which  it  had  no 
control. 

The  States  were  forbidden  to  issue  "  bills  of  credit,"  but  the 
notes  of  banks  created  by  them  were  "  bills  of  credit  to  all  intents 
and  purposes."  A  State  could  not  do  indirectly,  through  instruments 
created  by  itself,  what  it  could  not  do  directly.  "Bills  of  credit  " 
were  issued  by  the  States  notwithstanding,  some  of  them  providing 
capital  therefor  and  appointing  the  staff  to  conduct  them.  The 
prohibition  in  the  Constitution  during  the  period  between  the  two 
banks  was  almost  wholly  nugatory.  Within  it  "  injustice  to  individ- 
uals, the  embarrassment  of  the  Government,  the  depreciation  of  the 
currency,  the  want  of  uniformity,  the  moral  necessity  imposed  on 
the  community  either  to  receive  an  unsound  currency  or  to  suspend 
every  payment,  purchase,  sale,  or  other  transaction  incident  to  the 
wants  of  society;  ail  the  evils  which  followed  the  suspension  of 
specie  payments,  were  as  great,  if  not  greater,"  said  Mr.  Gallatin, 
"  than  those  which  might  have  been  inflicted  by  a  paper  currency 
issued  under  the  authority  of  any  State."  Fortunately,  by  means  of 
a  National  Bank,  "bills  of  credit"  issued  by  the  State  banks,  from 
the  restrictions  imposed  upon  them,  were  subsequently  not  only 
equal  in  value  to  the  issues  of  the  national  one,  but  proved  to  be  of 
the  greatest  advantage,  State  banks  being  established  in  numerous 
places  in  which  the  National  Bank  had  no  branch,  so  that  "  bills  of 
credit "  of  the  State  banks,  which  seemed  to  be  palpable  infractions 
of  the  Constitution,  proved  efficient  instruments  for  the  promotion 
of  the  general  welfare. 

In  the  period  between  the  two  banks  the  National  Government 
was  compelled  to  accept  the  notes,  the  value  of  which  differed 
greatly,  of  the  State  banks,  in  all  its  operations.  The  value  of 
the  notes  of  the  banks,  which  did  not  suspend  specie  payments,  of 
the  New  England  States,  was  equal  to  that  of  specie.  Those  of  the 
banks  of  the  State  of  New  York  were  at  a  discount  of  15  per  cent. ; 
of  Philadelphia,  20  per  cent.;  of  Baltimore,  25  per  cent.  Away 
from  the  great  centres  of  trade  the  depreciation  was  still  greater.  Still 


46  BANK    OF    THE    UNITED    STATES. 

all  revenues  of  the  Government,  wherever  collected,  had  to  be  paid 
in  notes  issued  in  the  different  sections  of  the  country.  The  people 
of  the  New  England  States,  consequently,  were  far  more  heavily 
taxed  that  those  of  other  sections,  in  violation  of  the  provision  of  the 
Constitution  that  "  all  duties,  imposts,  and  excises  shall  be  uniform 
throughout  the  United  States."  During  the  suspension  of  specie 
payments  in  Great  Britain  the  value,  though  greatly  depreciated,  of 
the  notes  of  the  Bank  of  England  in  which  the  revenues  were  paid 
was  the  same  throughout  the  kingdom.  "  Taxes,  imposts  and 
excises  "  everywhere  were  at  the  same  standard  as  to  value.  The 
remedy  in  the  United  States  was  a  National  Bank,  the  notes  of 
which  were  everywhere  of  the  same  value,  the  notes  of  the  State 
banks  subject,  in  effect,  to  the  restrictions  imposed  upon  the 
National  Bank,  being  everywhere  of  the  same  value,  that  of  specie. 
Without  such  an  institution  it  was  impossible  that  the  taxes  should 
be  levied  as  the  Constitution  prescribed.  "If  a  currency  exclu- 
sively metallic  is  preferred,  the  object  will  be  obtained,"  said  Mr. 
Gallatin,  "by  levying  prohibitory  stamp  duties  on  bank  notes  of 
every  description,"  precisely  as  similar  duties  were  levied,  but  with  a 
very  different  purpose,  during  the  War  of  the  Rebellion.  A  resort 
to  a  measure  so  harsh  was  greatly  to  be  deprecated.  The  fact  that 
specie  payments  were  restored  and  had  been  maintained  through 
the  instrumentality  of  the  bank  "gives  a  complete  guarantee,"  said 
Mr.  Gallatin,  "  that  under  any  circumstances  its  notes  will  preserve 
the  same  uniformity  they  now  possess.  Placed  under  the  control  of 
the  Government,  relying  for  its  existence  upon  the  correctness, 
prudence  and  skill  with  which  it  shall  be  maintained ;  perpetually 
watched  and  occasionally  checked  both  by  the  Secretary  and  rival  in- 
stitutions ;  without  a  monopoly,  and  yet  with  a  capital  and  resources 
adequate  for  the  object  for  which  it  was  established ;  the  bank 
affords  the  strongest  possible  security  which  can  be  given  in  re- 
spect to  paper,  not  only  for  its  ultimate  solvency,  but  for  the  unin- 
terrupted solvency  of  the  currency." 

The  manner  in  which  the  National  Bank,  vested  with  no  authority 
over  them  by  law,  checked  the  issues  of  the  State  banks  was  very 
obvious  and  simple.  It  consisted  of  receiving  the  issues  of  all  in 
good  credit,  such  issues  to  be  presently  made  good  either  by  offset 
or  in  coin,  proper  forbearance  being  extended  by  the  national  as 
the  stronger  institution,  but  bound  to  protect  itself,  as  the  issues  of 


BANK    OF    THE    UNITED    STATES. 


47 


the  State  banks  were  received  by  it  equally  with  its  own  in  the  pay- 
ment of  the  revenues.  "  The  general  complaint  on  the  part  of 
many  of  the  State  banks  that  they  were  controlled  in  their  operations 
by  the  Bank  of  the  United  States,  that,  to  use  a  common  expres- 
sion, it  operates  as  a  screw,  is  the  best  evidence  that  its  general 
operation  is  such  as  has  been  intended."  For  the  bank  to  refuse  to 
receive  on  deposit  or  in  the  payment  of  its  bills  or  of  the  public 
revenues  the  issues  of  any  of  the  State  banks  would  be  to  throw 
such  discredit  upon  them  that  the  public  would  not  receive  them. 
The  effect  was  the  same  as  the  expulsion  at  the  present  time  of  a 
bank  from  the  New  York  Clearing  House.  With  such  a  menace 
always  over  them,  their  issues,  limited  to  bills  of  exchange,  could 
no  more  inflate  the  currency  than  those  of  the  Bank  of  the  United 
States. 

To  the  assertion  of  General  Jackson  that  the  bank  had  failed  in 
establishing  a  sound  and  uniform  currency,  Mr.  Gallatin  replied  that 
a  sound  and  uniform  currency  could  be  provided  only  through  the 
medium  of  a  National  Bank  the  same  in  kind  as  that  which  existed. 

The  reply  of  Mr.  Madison  was  in  vindication  chiefly  of  the  con- 
stitutionality of  the  bank.  He  had  been  President  from  1809  to 
1817,  for  the  whole  period  between  the  two  banks  and  for  that  of 
the  war,  and  had  been  witness  of  the  terrible  disasters  resulting  from 
the  neglect  to  extend  the  charter  of  the  first,  and  had  earnestly 
favored  and  signed  the  bill  for  the  second,  as  the  only  escape  there- 
from. He  left  seclusion,  the  solace  of  his  declining  years,  to  com- 
bat with  all  the  force  of  his  long  experience,  his  great  abilities, 
his  fervent  patriotism  and  unsullied  name,  the  doctrine  of  anarchy 
now  first  proclaimed  by  a  President  of  the  United  States.  In  a 
communication  addressed,  under  date  of  June  25,  1831,  to  Mr. 
Charles  J.  Ingersoll,  he  said  : 

I  have  received  your  letter  of  the  i8th  instant.  The  few  lines  which  answered 
your  former  one  of  the  2ist  of  January  last  were  written  in  haste  and  in  bad 
health;  but  they  expressed,  though  without  the  attention  in  some  respects  due  to 
the  occasion,  a  dissent  from  the  views  of  the  President  as  to  the  Bank  of  the 
United  States  and  a  substitute  for  it,  to  which  I  cannot  but  adhere.  The  objec- 
tions to  the  latter  have  appeared  to  me  to  predominate  greatly  over  the  advantages 
expected  from  it,  and  the  constitutionality  of  the  former  I  still  regard  as  sustained 
by  the  considerations  to  which  I  yielded  in  giving  my  assent  to  the  existing  bank. 
Some  obscurity  has  been  thrown  over  the  question,  by  confounding  it  with  the 


48  BANK    OF    THE    UNITED    STATES. 

respect  due  from  one  legislature  to  laws  passed  by  preceding  legislatures.  But  the 
two  cases  are  essentially  different.  A  constitution  being  derived  from  a  superior 
authority  is  to  be  expounded  and  obeyed,  not  controlled  or  varied,  by  the  subor- 
dinate authority  of  a  legislature.  A  law,  on  the  other  hand,  resting  on  no 
higher  authority  than  that  possessed  by  every  successive  legislature,  its  expediency 
as  well  as  its  meaning  is  within  the  scope  of  the  latter. 

The  case  in  question  has  its  true  analogy  in  the  obligation  arising  from  judicial 
expositions  of  the  law  on  succeeding  judges ;  the  Constitution  being  a  law  to  the 
legislator,  as  the  law  is  a  rule  of  decision  to  the  judge.  And  why  are  judicial 
precedents,  when  formed  on  due  discussion  and  consideration,  and  deliberately 
sanctioned  by  reviews  and  repetitions,  regarded  as  of  binding  influence,  or  rather 
of  authoritative  force,  in  settling  the  meaning  of  a  law?  It  must  be  answered,  1st, 
because  it  is  a  reasonable  and  established  axiom  that  the  good  of  society  requires 
that  the  rules  of  conduct  of  its  members  should  be  certain  and  known,  which 
would  not  be  the  case  if  any  judge,  disregarding  the  decisions  of  his  predecessors, 
should  vary  the  rule  of  law  according  to  his  individual  interpretation  of  it. 
Miser  a  est  servitus  ubi  jus  est  aut  vagum  aut  incognitum  ;  2d,  because  an  expo- 
sition of  the  law  publicly  made  and  repeatedly  confirmed  by  the  constituted 
authority  carries  with  it  by  fair  inference  the  sanction  of  those  who,  having  made 
the  law,  through  their  legislative  organs,  appear  under  such  circumstances  to  have 
determined  its  meaning  through  their  judiciary  organ. 

Can  it  be  of  less  consequence  that  the  meaning  of  a  constitution  should  be 
fixed  and  known  than  that  the  meaning  of  a  law  should  be  so?  Can,  indeed,  a 
law  be  fixed  in  its  meaning  and  operation,  unless  the  Constitution  be  so  ?  On  the 
contrary,  if  a  particular  legislature,  differing  in  the  construction  of  the  Constitu- 
tion from  a  series  of  preceding  constructions,  proceed  to  act  on  that  difference, 
they  not  only  introduce  uncertainty  and  instability  in  the  Constitution,  but  in  the 
laws  themselves;  inasmuch  as  all  laws  preceding  the  new  construction  and  incon- 
sistent with  it  are  not  only  annulled  for  the  future,  but  virtually  pronounced 
nullities  from  the  beginning.  But  it  is  said  that  the  legislator,  having  sworn  to 
support  the  Constitution,  must  support  it  in  his  own  construction  of  it,  however 
different  from  that  put  on  it  by  his  predecessors,  or  whatever  be  the  consequences 
of  the  construction.  And  is  not  the  judge  under  the  same  oath  to  support  the 
law?  Yet  has  it  ever  been  supposed  that  he  was  required  or  at  liberty  to  disregard 
all  precedents,  however  solemnly  repeated  and  regularly  observed ;  and,  by  giving 
effect  to  his  own  abstract  and  individual  opinions,  to  disturb  the  established  course 
of  practice  in  the  business  of  the  community?  Has  the  wisest  and  most  conscien- 
tious judge  ever  scrupled  to  acquiesce  in  decisions  in  which  he  has  been  overruled 
by  the  mature  opinions  of  the  majority  of  his  colleagues,  and  subsequently  to 
conform  himself  thereto,  as  to  the  authoritative  expositions  of  the  law?  And  is  it 
not  reasonable  that  the  same  view  of  the  official  oath  should  be  taken  by  a  legis- 
lator acting  under  the  Constitution,  which  is  his  guide,  as  is  taken  by  a  judge 
acting  under  the  law,  which  is  his  ? 

There  is  in  fact,  and  in  common  understanding,  a  necessity  of  regarding  a 
course  of  practice,  as  above  characterized,  in  the  light  of  a  legal  rule  of  interpret- 
ing a  law;  and  there  is  a  like  necessity  of  considering  it  a  constitutional  rule  of 
interpreting  a  constitution.  .  .  . 


BANK    OF    THE    UNITED    STATES.  49 

It  was  in  conformity  with  the  view  here  taken  of  the  respect  due  to  deliberate 
and  reiterated  precedents  that  the  Bank  of  the  United  States,  though  on  the 
original  question  held  to  be  unconstitutional,  received  my  executive  signature  in 
the  year  1816.  The  Act  originally  establishing  a  bank  had  undergone  ample  dis- 
cussions in  its  passage  through  the  several  branches  of  the  Government.  It  had 
been  carried  into  execution  throughout  a  period  of  twenty  years,  with  annual 
legislative  recognitions;  in  one  instance,  indeed,  with  a  positive  ramification  of  it 
into  a  new  State;  and  with  the  entire  acquiescence  of  all  the  local  authorities,  as 
well  as  of  the  nation  at  large,  to  all  of  which  may  be  added  a  decreasing  prospect 
of  any  change  in  the  public  opinion  adverse  to  the  constitutionality  of  such  an 
institution.  A  veto  from  the  Executive,  under  these  circumstances,  with  an  admis- 
sion of  the  expediency  and  almost  necessity  of  the  measure,  would  have  been 
a  defiance  of  the  obligations  derived  from  a  course  of  precedents  amounting  to 
the  requisite  evidence  of  the  national  judgment  and  intention. 

It  has  been  contended  that  the  authority  of  precedents  was  in  that  case  inval- 
idated by  the  consideration  that  they  proved  only  a  respect  for  the  stipulated 
duration  of  the  bank  with  a  toleration  of  it  until  the  law  should  expire,  and  by 
the  casting  vote  given  in  the  Senate  by  the  Vice-President,  in  the  year  1811, 
against  a  bill  for  establishing  a  National  Bank,  the  vote  being  expressly  given  on 
the  ground  of  unconstitutionally.  But,  if  the  law  itself  was  unconstitutional,  the 
stipulation  was  void,  and  could  not  be  constitutionally  fulfilled  or  tolerated. 
And  as  to  the  negative  of  the  Senate,  by  the  casting  vote  of  the  presiding  officer, 
it  is  a  fact  well  understood  at  the  time  that  it  resulted  not  from  an  equality  of 
opinions  in  that  assembly  on  the  power  of  Congress  to  establish  a  bank,  but  from 
a  junction  of  those  who  admitted  the  power,  but  disapproved  the  plan,  with  those 
who  denied  the  power.  On  a  simple  question  of  constitutionality,  there  was  a 
decided  majority  in  favor  of  it. 

Mr.  Madison  inferred  the  constitutionality  of  the  bank  from  long 
use  —  from  precedent,  the  strongest  argument  that  could  be  adduced, 
for  the  object  of  all  construction  is  to  adapt  their  organic  law  to  the 
life  of  a  people.  It  may  seem  strange  that  neither  Mr.  Madison 
nor  Mr.  Gallatin  referred,  in  terms,  to  the  authoritative  decision  in 
1819  of  the  Supreme  Court,  affirming  the  constitutionality  of  the 
Act  creating  the  bank.  Both  took  higher  ground.  The  construction 
given  to  the  Constitution  by  long  practice  or  habit  expressed,  so  far, 
the  life  of  the  people.  An  exposition  by  the  Supreme  Court  might 
not  be  in  harmony  with  such  life.  It  might  be  in  violation  of 
it.  An  exposition  at  one  time  might  be  overruled  by  another.  It 
is  the  duty  of  a  court  to  correct  its  own  misconceptions,  or  the  inad- 
equacy of  its  former  renderings.  But  a  construction  by  the  people 
long  concurred  in  must  be  in  such  harmony  with  their  welfare  as 
not  to  be  overruled.  Mr.  Madison  and  Mr.  Gallatin  placed  them- 
selves upon  more  authoritative  ground  —  upon  natural  law.  When 


t^O  BANK    OF    THE    UNITED    STATES. 

the  construction  is  by  the  people,  the  law  is  neither  "  vagum"  nor 
"incognitum;"  it  is  a  part  of  their  daily  life.  The  decision  of  a 
supreme  tribunal  may,  to  the  ordinary  mind,  be  both  "  vagum  "  and 
"  incognitum''  There  is  a  life  of  society  as  well  as  individuals.  It 
must  with  both  be  harmonious  to  have  its  highest  value,  or  to  have 
any  value.  It  is  the  old  story  —  the  minority  must  submit  to  the 
will  of  the  majority.  To  dissenting  justices  the  law  as  laid  down  by 
the  majority  is  their  rule  of  conduct.  So  with  all  holding  official 
position.  Mr.  Madison,  as  a  member  of  Congress,  earnestly  opposed 
the  charter  of  the  first  bank.  His  convictions,  most  emphatically 
expressed,  were  overruled  by  the  popular  judgment.  If  not  over- 
ruled, it  would  have  been  his  duty  to  approve  the  charter  of  the 
second  bank.  But  not  only  were  the  convictions  once  entertained 
overruled,  but  from  a  sense  of  the  value  and  usefulness  of  the  first 
bank  he  earnestly  recommended  the  creation  of  the  second  one. 

On  the  twenty-third  day  of  December,  1830,  the  House  of  Rep- 
resentatives directed  a  special  committee  of  that  body  "  to  inquire 
into  the  expediency  of  providing  by  law  that  dollars  of  the  new 
(Spanish)  American  governments  and  five-franc  pieces  shall  be  a 
legal  tender  in  the  payment  of  all  debts  and  demands ;  and,  also, 
whether  any  additional  regulations  are  necessary  relative  to  the 
recoinage  of  foreign  silver  coined  at  the  mint."  On  the  23d  of 
February,  1831,  the  committee,  of  which  Mr.  Campbell  P.  White, 
of  New  York,  was  chairman,  submitted  a  report,  from  which  the  fol- 
lowing extracts  are  given  : 

In  countries  where  gold  and  silver  coin  compose  exclusively,  or  chiefly,  the 
currency,  it  is  a  general  and  very  convenient  practice  to  use  national  coins.  The 
public  seal  is  a  satisfactory  evidence  of  their  value,  and  the  money  unit  and  its 
parts,  being  uniformly  exhibited,  facilitate  computation.  This  usual  practice  did 
not,  however,  obtain  when  our  circulation  was  principally  metallic;  and  the 
motives  of  convenience,  which  recommend  an  extensive  issue  of  standard  coins, 
cease  to  have  influence  in  our  present  circumstances.  Our  currency  is  bank 
notes,  to  the  exclusion  of  the  precious  metals,  except  as  change.  The  money 
unit  of  the  United  States,  or  its  concurrent  tender,  "  Spanish  milled  dollars,"  is 
rarely,  if  ever,  seen  in  circulation.  The  currency  differs  from  that  of  all  other 
nations  extensively  commercial,  in  being  truly  and  effectively  paper,  secured  by  a 
specie  fund,  held  by  its  issuers,  the  banks. 

Gold  and  silver,  whether  coined  or  not,  are  viewed  in  the  commercial  world 
as  bullion,  and  valued  according  to  their  quantity  of  fine  metal.  The  stamp  of 


REPORT    OF    THE    COMMITTEE    ON    COINAGE.  5  I 

the  United  States  adds  nothing  to  the  value  of  the  precious  metals  abroad;  and, 
as  it  is  a  costly  impression,  it  should  only  be  applied  when  necessary  to  the  gen- 
eral convenience  of  the  community.  It  is  not  perceived  in  what  respect  the 
public  convenience  is  promoted  by  the  coinage  of  silver,  which  passes  temporarily 
into  the  vaults  of  the  banks,  and  is  soon  afterwards  again  melted  by  refiners  in 
foreign  nations. 

The  director  of  the  mint  states  that  the  American  coin  possessed  by  the  Bank 
of  the  United  States  and  its  branches  is  less  than  $2,000,000,  or  about  one-sixth 
part  of  its  specie.  Assuming  a  similar  ratio  for  the  State  banks  (which  is  a  liberal 
estimate,  considering  the  advantageous  position  of  the  former  institution),  the 
entire  amount  of  American  coin  held  by  the  banks  does  not,  likely,  much  exceed 
$4,000,000.  Taking  the  issues  of  one,  two,  and  three  dollar  notes  in  the  East- 
ern States  as  a  guide,  it  does  not  seem  probable  that  there  is  a  greater  amount  of 
silver  in  general  circulation,  of  all  denominations,  than  $5,000,000,  of  which 
perhaps  $3,000,000  or  $4,000,000  are  American  coin. 

According  to  this  estimate,  the  national  coins  do  not,  likely,  exceed  $7,000,000 
or  $8,000,000  in  silver.  The  mint  has  fabricated  $3 7,000,000,  of  which  $9,000,- 
ooo  were  of  gold.  Considering  that  $20,000,000  of  silver  coins  have  been  issued 
since  1817,  and  about  $11,000,000  within  the  last  five  years,  the  inutility  and 
inexpediency  of  extensive  operations  at  the  mint  are  manifest. 

The  silver  coins  of  the  banks  should  be  viewed  as  the  money  of  commerce,  the 
value  of  which  is  determined  by  its  quantity  of  fine  metal.  This  course  is  in 
accordance  with  sound  mercantile  principles,  and  with  former  usage. 

Congress  has  repeatedly  sanctioned  it,  by  regulating  the  value  of  British, 
Portuguese,  French,  and  Spanish  gold,  and  also  of  five-franc  pieces  and  crowns 
of  France,  giving  them  currency  according  to  their  weight  when  tendered,  at 
rates  calculated  to  minute  fractions,  varying  with  the  standard  of  their  respective 
mints  —  a  course  of  policy  which  is  equitable  to  all  in  its  effects,  and  beneficial 
as  well  as  accommodating  to  commercial  operations. 

If  these  coins  were  a  legal  tender  on  the  principle  of  regulation  applied  to  other 
coins  noted,  being  current  by  weight,  at  the  correct  value  ascertained  by  mint 
experiments  (that  of  1 1 6.10  cents  per  ounce),  justice  would  be  rendered  to 
the  importing  merchant,  a  heavy  annual  expense  would  be  saved  to  the  United 
States,  and  banking  and  commercial  transactions  would  be  greatly  facilitated. 
If  our  currency  was  metallic,  public  convenience  might  reasonably  demand  and 
properly  discharge  the  expense  of  coining  all  silver  previous  to  its  being  ten- 
dered in  payments. 

In  conformity  with  these  views,  the  committee  recommend  that  the  dollars  of 
Mexico,  Central  America,  Peru,  Chili,  and  also  the  dollars  restamped  in  Brazil,  of 
the  denomination  of  960  reas,  shall  be  a  legal  tender  in  all  payments  above  the 
sum  of  $100,  at  the  rate  of  116.10  cents  per  ounce  troy,  provided  the  afore- 
said coins  shall  be  of  the  usual  standard  fineness  of  10  ounces  15%  pennyweights 
of  fine  silver  to  the  pound  troy  of  12  ounces;  and  that  the  five-franc  pieces  of 
France,  of  the  standard  of  10  ounces  16  pennyweights  fine  to  the  pound  troy, 
shall  likewise  be  a  legal  tender  in  all  payments  exceeding  $100,  at  the  rate  of 
116.40  cents  per  ounce  troy. 

If  the  total  quantity  of  coins  in^general  circulation  be   correctly  estimated  at 


fj3  BANK    OF    THE    UNITED    STATES. 

$5,000,000,  the  wear  and  necessary  supply  for  an  increasing  population  cannot, 
under  our  present  system  of  money,  create  a  yearly  demand  for  more  than 
$200,000  or  $300,000  of  new  coins,  in  addition  to  the  amount  in  circulation. 

The  deposit  of  silver  bullion  for  five  years  past  appears  to  be  increasing ;  and 
its  annual  average  being  $600,000,  there  is  no  reason  to  doubt  but  the  mint 
will  be  abundantly  supplied  with  silver  for  every  useful  and  desirable  object. 

The  conclusions  to  which  the  committee  came  were  : 

1 .  That  the  operations  of  commerce  will  assuredly  dispense  to  every  country 
its  equitable  and  useful  proportion  of  the  gold  and  silver  in  currency,  if  it  is  not 
repulsed  by  paper  or  subjected  to  legal  restrictions. 

2.  That  it  cannot  be  of  essential  importance  to  any  State  whether  its  propor- 
tion of  the  money  of  commerce  thus  distributed  consists  of  gold  or  of  silver,  or  of 
both  metals,  it  being  the  instrument  of  exchange,  but  not  the  commodity  really 
wanted. 

3.  That  there  are  inherent  and  incurable  defects  in  the  system  which  regulates 
the  standard  of  value  in  both  gold  and  silver :  its  instability  as  a  measure  of  con- 
tracts, and  mutability  as  the  practical  currency  of  a  particular  nation,  are  serious 
imperfections;  whilst  the  impossibility  of  maintaining  both  metals  in  concurrent, 
simultaneous,  or  promiscuous  circulation  appears  to  be  clearly  ascertained. 

4.  That   the  standard  being  fixed  in  one  metal  is  the  nearest  approach  to 
invariableness,  and  precludes  the  necessity  of  further  legislative  interference. 

5.  That  gold  and  silver  will  not  circulate  promiscuously  and  concurrently  for 
similar  purposes  of  disbursement.     Nor  can  coins  of   either  metal  be  sustained  in 
circulation  with  bank  notes,  possessing  public  confidence,  of  the  like  denomi- 
nations. 

6.  That,  if  the  national  interest  or  convenience  should  require  the  permanent 
use  of  gold  eagles  and  their  parts,  and  also  of  silver  dollars,   the  issue   of  bank 
bills  of  one,  two,  three,  five,  and  ten  dollars  must  be  prohibited. 

7.  That,  if  it  should  hereafter  be  deemed  advisable  to  maintain  both  gold  and 
silver  coins  in  steady  circulation,  and  to  preserve  silver  as  the  measure  of  com- 
merce and  contracts,  gold  must  be  restricted  to  small  payments. 

8.  That  if  it  is  the  intention  to  preserve  silver  as  the  principal  measure  of 
exchange,  permanently  and  securely,  it  will  be  necessary  to  estimate  the  relative 
value  of  gold  under  [below]  its  present  average  or  probable  future  value  in  gen- 
eral commerce. 

The  report  of  the  committee  is  important  in  showing,  from  what 
may  be  called  an  independent  standpoint,  as  it  was  not  intended  as 
a  reply  to  General  Jackson's  attack  upon  the  bank,  the  condition  or 
state  of  the  currency  at  the  time,  whether  symbolic  or  metallic,  and 
of  the  views  universally  held  as  to  the  laws  which  regulate  the  value 
and  circulation  of  the  latter.  The  currency,  except  in  the  form  of 
change,  was  wholly  of  paper,  the  amount  of  metallic  money  in  the 


REPORT    OF    THE    COMMITTEE    ON    COINAGE.  53 

hands  of  the  people  not  exceeding  $5,000,000,  or  about  30  cents 
per  head.  As  with  an  adequate  provision  of  paper  money,  metallic 
money  would  not  enter  into  circulation,  the  nation,  the  committee 
declared,  should  not  be  burdened  with  the  coinage  of  an  amount 
exceeding  the  wants  of  the  people,  that  for  such  purpose  being  from 
$200,000  to  $300,000  annually,  of  small  coins,  no  silver  dollars  hav- 
ing been  coined  since  1808,  of  which,  up  to  the  date  of  the  com- 
mittee's report,  only  about  1,400,000  had  been  issued.  As  the  value 
of  metallic  money  is  measured  by  weight,  the  coinage  of  other  coun- 
tries was  as  good  as  our  own  and  as  appropriate  for  reserves,  the 
only  use  to  which,  on  any  considerable  scale,  it  was  put.  At  the 
time,  foreign  coins  were  almost  the  only  kind  in  use,  the  value  of 
those  in  the  hands  of  the  people  and  the  banks,  coming  from  our 
mint,  not  exceeding  $7,000,000  or  $8,000,000  of  a  total  coinage, 
of  silver,  of  $28,000,000.  The  amount  of  specie,  all  silver,  in  the 
hands  of  the  people  and  the  banks  was  about  $22,000,000,  the 
sum  averaging  about  $1.70  per  head  of  population.  The  recom- 
mendation of  the  committee,  therefore,  was  well  made,  "  that  the 
silver  dollars  of  Mexico,  Peru,  Chili,  and  Brazil,  and  the  crowns 
and  five-franc  pieces  of  France,  all  of  standard  value,  be  legal 
tender  in  the  United  States  in  all  contracts  exceeding  $100,"  re- 
peating the  precedent  established  at  the  foundation  of  the  Govern- 
ment, for  the  reason,  to  use  the  words  of  the  committee,  that 
"  the  operations  of  commerce  will  assuredly  disburse  to  every 
country  its  equitable  proportion  of  gold  and  silver  in  currency,"  and 
without  any  provision  of  its  own,  —  a  recommendation  exhaustive 
of  the  whole  subject  under  discussion. 

The  report  of  the  committee  is  also  important  in  showing  the 
probable  amount  of  metallic  money  that  would,  with  a  proper  system, 
interpose  in  the  domestic  exchanges  at  the  present  time.  The 
amount  of  the  loans  at  bank,  January  i,  1830,  was  $200,541,214, 
The  amount  of  symbolic  money  provided  at  the  time  equalled 
$116,883,826,  consisting  of  $61,323,898  of  notes  and  $55,559,928 
of  deposits.  Assuming  that  the  bills  discounted  ran  for  sixty  days, 
the  average  amount  daily  falling  due  equalled  $4,000,000.  So  small 
was  the  amount  of  metallic  money  in  circulation,  and  so  scattered 
was  it,  that  no  considerable  amounts  could  be  massed  for  any  pur- 
pose whatever.  It  is  not  probable  that  silver,  the  only  kind  of 
money  in  circulation,  and  that  in  the  form  of  subsidiary  coins,  inter- 


54 


BANK    OF    THE    UNITED    STATES. 


posing  in  the  payment  of  bills  exceeded  i  per  cent,  of  their  amount, 
or  $40,000  daily.  Were  we  now  on  a  similar  basis,  it  is  not  prob- 
able that  a  larger  proportional  amount  of  metallic  money  would  be 
required.  That  a  much  larger  amount  interposes  is  due  to  the 
vicious  monetary  system  which  prevails.  Under  the  two  banks  the 
loans  made  were  almost  all  time-loans.  The  aggregate  amount  of 
issues  of  banks  and  bankers  at  the  present  time  equals  about 
$3,200,000,000.  The  exchanges  at  the  Clearing  House,  showing 
the  amount  daily  maturing  at  the  great  centres  of  trade,  average 
about  $200,000,000  daily,  the  whole  amount  of  loans  and  discounts 
at  any  one  time  outstanding  running  off  within  a  period  of,  say, 
sixteen  days.  The  exchanges  at  the  Clearing  Houses  make  up  the 
greater  part  of  those  of  the  country.  The  balances  daily  arising  at 
these  average  about  8  per  cent.,  or  $16,000,000.  Were  no  loans 
made  but  upon  bills  of  exchange,  it  is  not  probable  that  the  balances 
daily  arising  would  exceed  one-quarter  their  present  amount,  or 
$4,000,000.  Banks  now  exercise  two  functions  —  they  are  lenders 
of  capital  as  well  as  discounters  of  bills.  The  two  are  wholly 
different  in  kind,  and  should  never  be  exercised  by  the  same  institu- 
tion unless  it  be  composed  of  two  independent  departments.  A 
lender  of  capital  parts  with  it.  The  capital  of  an  issuer  of  currency 
is  always  to  remain  in  hand.  To  part  with  it  is  to  weaken  his  power 
of  issue  and  contract  the  volume  of  currency  in  an  equal  degree. 
Loans  of  capital  at  bank  are  ordinarily  demand  loans  liable  to  be 
called  in  at  any  moment,  often  requiring  large  sums  of  coin  in  their 
payment,  in  want  of  other  provision.  Another  reason  for  the  very 
large  balances  now  daily  arising  at  the  Clearing  Houses  is  that  a 
greater  part  of  the  currency,  that  of  the  Government,  does  not 
represent  merchandise  in  process  of  distribution,  and  is  not  dis- 
charged by  its  use.  It  is  neither  capital,  nor  the  symbol  of  capital. 
Its  effect,  consequently,  is  to  excite  speculative  operations  in  which 
large  balances  necessarily  arise.  With  the  retirement  of  such  cur- 
rency, and  with  proper  restrictions  upon  the  issues  by  banks,  the 
amount  daily  interposing  would  not  exceed  the  amount  named,  a 
much  larger  sum  to  be  provided  to  meet  demands  other  than  those 
arising  in  the  ordinary  operations  of  commerce  and  trade. 


BANK    OF    THE    UNITED    STATES.  55 

The  system  created  by  Hamilton  was  an  ideal  one,  as  by  it  no 
issues  could  be  made,  either  by  the  National  or  State  Banks,  except 
for  the  distribution  of  merchandise,  there  being  no  difference  be- 
tween them  and  the  bills  of  exchange  out  of  which  they  arose,  except 
that  the  former,  to  serve  as  money,  were  payable  presently ;  the 
latter  being  drawn  for  the  time  necessary,  in  theory  at  least,  for  the 
movement  of  merchandise  from  producers  to  distributers  for  con- 
sumption ;  the" purpose  and  effect  of  both  kinds  of  instruments  being 
to  discharge  capital  from  the  processes  of  distribution,  both  being 
retired  by  their  use,  the  value  of  each  depending  upon  that  of  its 
constituents,  merchandise,  and  the  reserves  of  the  issuers.  So  long 
as  the  issues,  whether  of  the  National  or  State  Banks,  were  sym- 
bolic there  could  be  no  inflation  of  the  currency,  as  the  amount  meas- 
ured the  value  of  the  subjects  of  consumption.  As  from  their 
representative  capacity  they  were  to  their  holders  the  equivalent  of 
specie,  they  were  preferred  to  it  as  money,  from  the  greater  safety 
and  convenience  of  their  use.  There  could  be  no  run  upon  the 
issuers  for  coin,  as  no  considerable  balances  to  be  paid  in  it  could 
arise  either  in  foreign  or  domestic  trade.  Such  balances  arise  in 
domestic  trade  only  when  "  accommodation  paper,"  as  it  is  termed, 
is  discounted ;  and  in  foreign  trade  only  when  imports  exceed  ex- 
ports of  merchandise,  in  which  case  gold  goes  forward  as  the 
universal  equivalent  for  their  discharge. 

Although  the  act  establishing  the  bank  provided  that,  during  its 
existence,  there  should  be  no  other  of  the  kind,  no  monopoly  of 
issue  was  or  could  be  created,  as  the  State  Banks  which  already  ex- 
isted, with  the  great  number  of  new  ones  which  speedily  followed, 
were  capable  of  supplying,  and  did  supply,  by  far  the  greater  part  of 
the  currency,  precisely  the  same  in  kind  as  that  issued  by  the 
National  one  to  which  the  public  would  naturally  give  preference, 
unless  the  issues  of  the  former  were  equally  well  based.  The  State 
Banks,  consequently,  without  any  provision  in  their  charters  there- 
for, were  forced  to  observe  the  restrictions  imposed  upon  the 
National  one ;  the  manner  in  which  they  were  enforced  having 
been  already  sufficiently  described.  The  National  Bank  received 
the  notes  and  credits  of  the  State  Banks,  not  only  in  the  ordinary 
course  of  business,  but  in  the  payment  of  the  public  revenues.  As 
it  was  responsible  for  these  to  the  Government,  at  the  value  of  coin, 
it  compelled  all  other  issuers  to  make  good  daily  in  coin  all  balances 


56      OVERTHROW    OF    BANK    AND     INFLATION    OF    CURRENCY. 

arising  against  them.  The  notes  and  credits  of  the  State  Banks,  over 
which  the  National  Government  had  no  other  control  but  that  de- 
scribed, could,  consequently,  no  more  inflate  the  currency,  could  no 
more  be  in  excess  than  those  of  the  National  Bank,  all  being  alike 
the  same  in  kind.  For  the  further  protection  of  the  public  the 
national  institution  was  restricted  to  a  rate  of  interest  not  exceed- 
ing six  per  cent.,  a  rate  never  regarded  as  excessive,  being  less  than 
that  prescribed  by  many  of  the  States  to  their  own  institutions. 
From  the  abundance  of  capital  it  was  seldom  that  such  rate  could 
be  obtained.  That  prescribed  to  the  National  could  not  be  ex- 
ceeded by  the  State  Banks,  as  the  former,  like  the  Bank  of  England, 
held  itself,  with  its  branches  established  at  every  considerable  place 
of  trade,  bound  to  discount  all  good  bills  that  were  offered.  By  the 
means  described  a  perfect  currency,  the  greater  part  of  it  supplied 
by  the  State  Banks,  was  provided  alike  for  the  Government  and 
people,  specie,  except  in  the  form  of  subsidiary  coins,  being  wholly 
discharged  from  ordinary  use.  As  the  bank  was  the  custodian  of  the 
public  revenues  the  Government  was  relieved  of  all  charge  of  their 
keeping,  transfer  and  distribution.  If  metallic  money  was  wanted, 
either  by  the  people  or  the  Government,  it  was  supplied  by  the  bank, 
remittances  abroad  being  made  by  its  bills  as  the  great  drawer  of 
"foreign  exchange." 

OVERTHROW    OF    THE    BANK    AND    THE     INFLATION    OF    THE    CURRENCY. 

In  1832  a  bill  passed  both  Houses  of  Congress  for  the  extension 
of  the  charter,  to  expire  in  1836,  of  the  bank.  The  bill  was  vetoed 
by  General  Jackson.  Among  the  reasons  therefor,  set  forth  in  a 
message  of  great  length,  were  the  following : 

To  the  extent  of  its  practical  effect,  the  bank  is  a  bond  of  union  among  the 
banking  establishments  of  the  nation,  erecting  them  into  an  interest  separate 
from  that  of  the  people,  and  its  necessary  tendency  is  to  unite  the  Bank  of  the 
United  States  and  the  State  banks  in  any  measure  which  may  be  thought  condu- 
cive to  their  common  interest. 

By  documents  submitted  to  Congress  at  the  present  session,  it  appears  that  on 
the  first  of  January,  1832,  of  the  $28,000,000  of  private  stock  in  the  corporation, 
$8,405,500  were  held  by  foreigners,  mostly  of  Great  Britain.  The  amount  of 
stock  held  in  the  nine  Western  and  Southwestern  States  is  $140,200,  and  in  the 
four  Southern  States  is  $5,623,100,  and  in  the  Middle  and  Eastern  States  is 
about  $13,522,000.  The  profits  of  the  bank  in  1831,  as  shown  in  a  statement  to 
Congress,  were  about  $3,455,598  ;  of  this  there  accrued  in  the  nine  Western 


OVERTHROW    OF    BANK    AND    INFLATION    OF    CURRENCY.       57 

States  about  $1,640,048;  in  the  four  Southern  States,  about  $352,507;  and  in 
the  Middle  and  Eastern  States,  about  $1,463,041.  As  little  stock  is  held  in  the 
West,  it  is  obvious  that  the  debt  of  the  people  in  that  section  to  the  bank  is 
principally  a  debt  of  the  Eastern  and  foreign  stockholders;  that  the  interest  they 
pay  upon  it  is  carried  into  the  Eastern  States  and  into  Europe;  and  that  it  is  a 
burden  upon  their  industry  and  a  drain  of  their  currency,  which  no  country  can 
bear  without  inconvenience  and  occasional  distress.  To  meet  this  burden  and 
equalize  the  exchange  operations  of  the  bank,  the  amount  of  specie  drawn  from 
those  States  through  its  branches,  within  the  last  two  years,  as  shown  by  its 
official  reports,  was  about  $6,000,000.  More  than  half  a  million  of  this  amount 
does  not  stop  in  the  Eastern  States,  but  passes  on  to  Europe,  to  pay  the  dividends 
of  the  foreign  stockholders.  In  the  principle  of  taxation  recognized  by  this  act, 
the  Western  States  find  no  adequate  compensation  for  this  perpetual  burden  on 
their  industry  and  drain  of  their  currency.  The  branch  bank  at  Mobile  made,  last 
year,  $95,140;  yet,  under  the  provisions  of  this  act,  the  State  of  Alabama  can 
raise  no  revenue  from  these  profitable  operations,  because  not  a  share  of  the  stock 
is  held  by  any  of  her  citizens.  Mississippi  and  Missouri  are  in  the  same  condition, 
in  relation,  to  the  branches  at  Natchez  and  St.  Louis  ;  and  such,  in  a  greater  or 
less  degree,  is  the  condition  of  every  Western  State.  The  tendency  of  the  plan  of 
taxation  which  this  act  proposes  will  be  to  place  the  whole  United  States  in  the 
same  relation  to  foreign  countries  which  the  Western  States  now  bear  to  the 
Eastern.  When,  by  a  tax  on  resident  stockholders,  the  stock  for  this  bank  is 
made  worth  ten  or  fifteen  per  cent,  more  to  foreigners  than  to  residents,  most  of 
it  will  inevitably  leave  the  country.  .  .  . 

In  another  of  its  bearings,  this  provision  is  fraught  with  danger.  Of  the 
twenty-five  directors  of  this  bank,  five  are  chosen  by  the  government  and  twenty 
by  the  citizen  stockholders.  From  all  voice  in  these  elections  the  foreign  stock- 
holders are  excluded  by  the  charter.  In  proportion,  therefore,  as  the  stock  is 
transferred  to  foreign  holders,  the  extent  of  suffrage  in  the  choice  of  directors  is 
curtailed. 

Already  is  almost  a  third  of  the  stock  in  foreign  hands,  and  not  represented 
in  elections.  It  is  constantly  passing  out  of  the  country,  and  this  act  will  accel- 
erate its  departure.  The  entire  control  of  the  institution  would  necessarily  fall 
into  the  hands  of  a  few  citizen  stockholders;  and  the  ease  with  which  the  object 
would  be  accomplished,  would  be  a  temptation  to  designing  men  to  secure  that 
control  in  their  own  hands,  by  monopolizing  the  remaining  stock.  There  is 
danger  that  a  president  and  directors  would  then  be  able  to  elect  themselves  from 
year  to  year,  and,  without  responsibility  or  control,  manage  the  whole  concerns  of 
the  bank  during  the  existence  of  its  charter.  It  is  easy  to  conceive  that  great 
evils  to  our  country  and  its  institutions  might  flow  from  such  a  concentration  of 
power  in  the  hands  of  a  few  men  irresponsible  to  the  people. 

Is  there  no  danger  to  our  liberty  and  independence  in  a  bank  that  in  its 
nature  has  so  little  to  bind  it  to  our  country  ?  . 

Should  the  stock  of  the  bank  principally  pass  into  the  hands  of  the  subjects 
of  a  foreign  country,  and  we  should  unfortunately  become  involved  in  a  war  with 
that  country,  what  would  be  our  condition?  Of  the  course  which  would  be  pur- 
sued by  a  bank  almost  wholly  owned  by  the  subjects  of  a  foreign  power,  and 


58   OVERTHROW  OF  BANK  AND  INFLATION  OF  CURRENCY. 

managed  by  those  whose  interests,  if  not  affections,  would  run  in  the  same 
direction,  there  can  be  no  doubt.  All  its  operations  within  would  be  in  aid  of 
the  hostile  fleets  and  armies  without.  Controlling  our  currency,  receiving  our 
public  moneys,  and  holding  thousands  of  our  citizens  in  dependence,  it  would  be 
more  formidable  and  dangerous  than  the  naval  and  military  power  of  the  enemy. 

It  is  maintained  by  the  advocates  of  the  bank  that  its  constitutionality,  in  all 
its  features,  ought  to  be  considered  as  settled  by  precedent,  and  by  the  decision 
of  the  Supreme  Court.  To  this  conclusion  I  cannot  assent.  Mere  precedent  is 
a  dangerous  source  of  authority,  and  should  not  be  regarded  as  deciding  questions 
of  constitutional  power,  except  where  the  acquiescence  of  the  people  and  the 
States  can  be  considered  as  well  settled. 

If  the  opinion  of  the  Supreme  Court  covered  the  whole  ground  of  this  act,  it 
ought  not  to  control  the  coordinate  authorities  of  this  government.  The  Con- 
gress, the  executive,  and  the  court  must  each  for  itself  be  guided  by  its  own 
opinion  of  the  Constitution.  Each  public  officer  who  takes  an  oath  to  support 
the  Constitution  swears  that  he  will  support  it  as  he  understands  it,  and  not  as  it 
is  understood  by  others.  It  is  as  much  the  duty  of  the  House  of  Representatives, 
of  the  Senate,  and  of  the  President  to  decide  upon  the  constitutionality  of  any 
bill  or  resolution  which  may  be  presented  to  them  for  passage  or  approval,  as  it 
is  of  the  supreme  judges  when  it  may  be  brought  before  them  for  judicial  decision. 
The  opinion  of  the  judges  has  no  more  authority  over  Congress  than  the  opinion 
of  Congress  has  over  the  judges;  and,  on  that  point,  the  President  is  independent 
of  both.  The  authority  of  the  Supreme  Court  must  not,  therefore,  be  permitted 
to  control  the  Congress  or  the  executive  when  acting  in  their  legislative  capac- 
ities, but  to  have  only  such  influence  as  the  force  of  their  reasoning  may  de- 
serve. .  .  . 

This  act  authorizes  and  encourages  transfers  of  its  stock  to  foreigners,  and 
grants  them  an  exemption  from  all  State  and  national  taxation.  So  far  from 
being  "  necessary  and  proper  "  that  the  bank  should  possess  this  power  to  make 
it  a  safe  and  efficient  agent  of  the  government  in  its  fiscal  operations,  it  is  calcu- 
lated to  convert  the  Bank  of  the  United  States  into  a  foreign  bank;  to  impoverish 
our  people  in  time  of  peace;  to  disseminate  a  foreign  influence  through  every 
section  of  the  republic  ;  and,  in  war,  to  endanger  our  independence. 

General  Jackson  in  his  veto  message  proceeded  upon  the  assump- 
tion that  the  issues  of  the  bank  were  mere  forms  of  credit,  costing 
nothing  in  themselves,  but  for  the  use  of  which  interest  was  charged. 
If  its  loans  equalled  $50,000,000,  at  five  per  cent.,  the  profit  was 
$2,500,000,  less  the  trifling  expense  involved.  A  privilege  so 
valuable,  if  not  originally  obtained  by  corruption,  was  to  be  main- 
tained by  corruption.  As  an  illustration  of  its  oppressions,  "  hardly 
a  dollar  of  the  share  capital  of  the  bank,"  he  said,  "was  held  in  the 
Southern  and  Western  States ;  yet  from  the  former  the  bank  in 
1831  drew  $1,640,048;  from  the  latter,  $352,507,"  —  all  pure 
plunder.  In  1830  and  1831,  specie,  to  the  amount  of  $6,000,000, 


OVERTHROW    OF    BANK    AND    INFLATION    OF    CURRENCY.       59 

for  which  no  return  was  received,  was,  he  declared,  drawn  from  the 
South  and  West,  the  greater  part  of  it  going  to  pay  dividends  on  the 
share  capital  of  the  bank  held  abroad,  —  "a  burden  that  no  people 
could  bear."  As  a  further  illustration  :  the  profits  of  the  branch  at 
Mobile,  Ala.,  in  1831,  equalled  $95,148, — all  sheer  robbery,  "nota 
share  of  the  stock  of  the  bank  being  held  by  citizens  of  that  State." 
It  was  the  same  with  the  States  of  Mississippi  and  Missouri.  These 
charges  and  many  others  the  same  in  kind,  by  their  mere  statement, 
were  held  at  the  time  to  be  fully  proved.  A  mighty  wave  of 
"  populism  "  swept  with  resistless  force  over  the  nation.  There 
were  no  great  commercial  and  manufacturing  interests,  so  potent  in 
the  contest  just  passed,  capable  of  making  headway  against  it.  At 
the  time  no  other  evidence  was  wanted  of  the  robberies  of  the 
issuers  of  paper  money  than  that  they  lived  in  expensive  abodes, 
rode  in  fine  carriages,  and  fared  well ;  the  great  mass  being  obliged 
to  content  themselves  with  humble  dwellings,  with  walking  in- 
stead of  riding  and  with  homely  fare.  In  vain  it  was  urged  that 
if  Alabama  and  Mississippi  had  not  a  dollar  of  the  share  capital  of 
the  bank  it  was  for  the  very  good  reason  that  they  had  a  better  use 
for  their  money ;  that  without  the  capital  of  others  their  products 
could  not  be  moved  and  would,  consequently,  be  worthless ;  that 
the  use  of  instruments  of  distribution,  whatever  the  kind,  always 
carries  with  it  an  obligation  to  pay  a  proper  consideration  therefor ; 
that  issuers  of  paper  money  could  have  no  motive  to  oppress,  as 
their  welfare  was  in  ratio  to  the  prosperity  of  the  people ;  that,  from 
competition,  their  returns  were  no  greater  upon  the  capital  that  had 
to  be#  provided  by  way  of  reserves  and  for  expenses  necessarily 
involved,  than  upon  equal  amounts  of  capital  and  service  dedicated 
to  other  modes  of  distribution,  or  to  production ;  that  their  profits 
could  not  be  excessive,  as  they  were  all  restricted  in  rates  to  six  per 
cent. ;  that  they  were  no  more  a  class  separated  from  the  people 
than  were  producers  of  merchandise  to  be  distributed  by  means  of 
the  instruments  described ;  that  there  could  be  no  monopoly  of 
issue,  as  charters  for  State  Banks  (the  great  issuers)  could  be  had 
for  the  asking ;  that  capital  always  tends  to  flow  in  the  direction  that 
promises  the  best  return,  and  that  those  who  had  most  to  lose  from 
any  great  convulsion  or  disaster  would  be  the  most  earnest  and  self- 
sacrificing  in  averting  it.  But  "  Down  with  the  monster  !  "  was 
the  mighty  cry  that  came  from  every  quarter  of  the  land. 


60   OVERTHROW  OF  BANK  AND  INFLATION  OF  CURRENCY. 

It  is  hardly  necessary  to  refer  to  the  absurd  charge  that  in  the 
event  of  a  foreign  war  the  share  capital  of  the  bank,  being  in  the 
hands  of  the  enemy,  would  be  a  source  of  danger  greater  than  that 
of  a  hostile  army  thundering  at  our  gates.  All  the  means  of  the 
bank  would  be  within  the  country,  directly  under  the  control  of 
the  government,  and  subject  to  seizure  and  forfeiture  should  the 
shareholders  be  in  league  with  the  enemy. 

Precedent  with  a  progressive  people  has  the  force  of  law,  being 
the  record  of  their  habits  or  life  as  to  the  matters  to  which  it  relates. 
The  purpose  of  all  constitutional  and  legislative  enactments  is  the 
general  welfare.  Common  law,  that  of  precedent,  precedes  consti- 
tutional and  statute  law,  one  of  the  great  functions  of  judicial 
tribunals  being  to  declare  and  give  it  form.  It  constituted  the  great 
part  of  the  law  inherited  by  the  United  States  from  England.  It 
was  the  source  of  Roman  Law  which,  having  for  its  groundwork  the 
sense  of  fitness  and  right,  excelled  all  systems  which  preceded  or 
followed.  Not  to  allow  precedent  to  ripen  into  law  is  to  defeat  the 
purpose,  the  general  welfare  of  constitutional  or  positive  law.  Mr. 
Jefferson  earnestly  opposed  the  proposition  for  the  first  bank  on  the 
ground  that  its  creation  transcended  the  powers  of  the  National 
Government,  there  being  no  express  warrant  therefor.  Upon  the 
acquisition  of  Louisiana  he  approved  of  the  bill  to  establish  a 
branch  of  the  bank  in  that  territory,  as  much  an  original  act  as  the 
creation  of  the  bank  itself,  his  objections  yielding  to  the  general 
voice.  Mr.  Madison,  who  with  Mr.  Jefferson  opposed  the  first 
bank,  earnestly  advocated  the  second,  from  a  sense  of  its  utility, 
declaring  that  precedent  had  overruled  the  objections  he  once  held. 
With  General  Jackson  the  fact  that  the  two  banks  had  been  in 
operation  for  a  period  of  thirty-six  years  was  no  evidence  of  the 
assent  thereto  of  the  people.  With  him  precedent  could  not  bind 
the  States  as,  in  relation  to  the  United  States,  they  were  sovereign. 
To  deny  the  force  of  precedent  in  the  interpretation  of  the  Consti- 
tution and  the  life  of  the  people  is  to  deal  a  fatal  blow  to  society 
itself,  a  blow  which  would  have  been  delivered  by  General  Jackson, 
but  for  the  appeal  to  the  final  arbiter  in  affairs  —  the  sword. 

It  would  naturally  be  supposed  that  from  such  an  extreme  and 
revolutionary  measure  as  the  striking  by  General  Jackson  of  the 
Supreme  Court  from  our  system,  the  people  would  have  recoiled 


OVERTHROW    OF    BANK    AND    INFLATION    OF    CURRENCY.       6l 

with  horror.  Instead  of  this,  they  rushed  to  the  support  of  the 
President,  North  and  South,  with  a  wilder  acclaim  than  that  which 
followed  his  assault  upon  the  bank  and  credit  system  of  the  country. 
What  is  the  explanation  of  such  a  strange  and  revolutionary  outburst  ? 

At  the  time  of  General  Jackson's  attack  upon  the  bank  and  the 
Supreme  Court,  civil  liberty  in  the  United  States  was  on  trial  —  to 
be  achieved  rather  than  already  established — the  great  struggle 
being  the  War  of  the  Rebellion,  which,  at  the  outset,  was  one  for 
power  on  the  part  of  the  North  and  independence  on  that  of  the 
South.  At  the  time  the  highways  of  the  country  were  the  old  earth- 
ways,  wholly  inadequate  to  the  distribution  of  merchandise  or  to 
intercommunication  upon  a  large  scale.  The  great  mass  of  the 
people  were  agriculturists  living  upon  their  own  products.  Although 
the  assault  upon  the  bank,  if  successful,  threatened  the  security  of 
all  property,  the  danger  with  the  great  mass  seemed  too  remote  to 
create  alarm.  Very  few  had  ever  seen  a  note  of  it,  or  had  any  rela- 
tion with  it.  All  that  they  could  be  made  to  see  was  its  great 
wealth,  contrasted  with  their  humble  means,  and  they  were  quite 
willing,  from  envy  or  jealousy,  to  see  it  overthrown,  no  matter  how 
violent  or  revolutionary  the  process.  From  the  slow  increase  of 
their  own  they  were  very  easily  made  to  believe  that  its  immense 
possessions  were  unfairly  acquired.  The  great  mass  were  equally 
indifferent  to  the  attack  upon  the  Supreme  Court,  which,  if  success- 
ful, was  certain  to  be  followed  by  anarchy,  from  which  the  country 
could  only  be  rescued  by  the  strong  arm  of  a  single  despot.  They 
hardly  knew  any  other  than  their  own  State  governments  which 
enacted  their  laws,  protected  them,  and  maintained  social  order. 
They  saw  no  more  danger  in  the  attack  upon  a  tribunal  so 
remote  as  the  National  Judiciary  than  upon  the  National  Bank. 
They  seldom  or  never  had  the  occasion  to  invoke  the  service  or 
protection  of  either.  They  could  get  on  as  well,  apparently,  without 
one  as  the  other.  Having  consciously  little  at  stake  and  but  a 
feeble  conception  of  the  basis  upon  which,  upon  the  broad  scale  of 
a  continent,  social  order  must  rest,  they  viewed  with  suspicion  and 
dread  a  tribunal  to  whose  mysterious  power  there  seemed  to  be  no 
limit  or  control,  which  had  overthrown  the  legislation  of  States,  and 
which  some  day  might  be  directed  against  themselves.  Under  such 
conditions  appeals  of  demagogues  to  the  people,  flattered  as  pos- 


62       OVERTHROW    OF    BANK    AND    INFLATION    OF    CURRENCY. 

sessing  every  manly  grace  and  virtue,  the  strength  of  the  nation,  the 
source  of  its  wealth  in  peace,  its  defence  from  foreign  aggression, 
but  overreached  and  robbed  by  the  crafty  and  unscrupulous  few, 
were  sure  to  carry  the  day.  They  will  always  carry  the  day  in 
republics  where  suffrage  is  free,  until  the  people,  the  working-classes, 
are  conscious  of  having  their  chief  stake  in  the  maintenance  of 
social  order.  At  the  time  of  General  Jackson  there  was  no  such 
consciousness ;  hence  the  ease  with  which  he  swayed  the  masses  at 
his  will.  Why,  in  the  recent  crisis,  did  not  appeals  as  inflamma- 
tory as  those  of  Jackson  carry  the  day? 

At  the  era  of  Jacksonism  no  internal  commerce  worthy  the  name 
existed.  Earthways  were  the  nation's  highways.  The  railway  was 
little  other  than  a  proposition.  The  telegraph,  with  which  one  may 
converse  with  another  a  thousand  miles  distant,  was  not  even  a 
proposition.  From  1832,  when  the  old  methods  still  prevailed,  to 
1895  a  mighty  change  had  taken  place.  In  the  latter  year  179,000 
miles  of  railway  were  in  operation,  the  share  capital  and  indebted- 
ness of  which  equalled  $i  1,000,000,000  ;  every  section  of  the  country 
was  penetrated  by  them.  They  moved  that  year  750,000,000  tons 
of  freight,  having  a  value  of  $15,000,000,000,  the  daily  movement 
equalling  2,500,000  tons,  having  a  value  of  $50,000,000.  Their 
earnings  for  the  year  equalled  $1,100,000,000,  of  which  $750,000,000 
were  paid  out  in  their  working.  For  this  nearly  1,000,000  of  picked 
men  were  employed.  The  merchandise  moved  the  same  year  over 
ordinary  highways,  and  water  borne,  equalled  250,000,000  tons,  the 
aggregate  for  the  country  being  1,000,000,000  tons,  having  a  value 
of  $20,000,000,000.  For  its  distribution  from  merchant  to  con- 
sumer, the  provision  of  instruments,  the  issues  of  banks  and 
bankers,  exceeded  $3,000,000,000,  this  sum  not  including  the  cur- 
rency in  its  various  forms  issued  by  the  United  States.  As  may 
well  be  supposed  the  free  and  orderly  movement  of  such  a  vast 
mass  in  quality  and  value  had  come  to  be  the  matter  of  chiefest 
concern.  To  arrest  it  for  a  single  day  was  to  arrest  the  movement 
of  3,000,000  tons,  having  a  value  of  $60,000,000.  In  view  of  the 
momentous  consequences  at  stake,  the  consternation  Created  by  the 
seizure  by  a  mob  of  the  railways  and  the  arrest  of  their  traffic  at  the 
great  point  of  concentration,  Chicago,  can  be  better  imagined  than 
described.  To  the  free  and  orderly  movement  of  their  vast  tonnage 


OVERTHROW    OF    BANK    AND    INFLATION    OF    CURRENCY.       63 

there  must  not  only  be  no  disturbance,  but  no  apprehension  of  dis- 
turbance at  home  ;  or  abroad,  as  the  relations  of  nations  are  now  so 
interwoven  that  antagonism  or  collisions  between  any  two  affect  to  a 
greater  or  less  degree  the  industries  of  all.  It  is  from  the  disturbances, 
almost  certain  to  be  created,  that  all  in  affairs  throughout  the  country 
view,  always  with  apprehension  and  often  with  profound  alarm,  the 
ordinary  meetings  of  Congress,  as  a  great  many  of  its  members, 
having  little  idea  of  their  consequences,  are  constantly  bringing  for- 
ward propositions  the  tendency  of  which  is  to  disturb  the  even 
flow  of  affairs,  production  and  distribution  being  arrested  in  ratio  to 
the  degree  of  apprehension  created.  Of  this  the  experience  of  the  last 
four  years  has  furnished  striking  examples.  Without  any  change  in 
principle  in  our  protective  system  the  menace  of  it  had  the  effect 
almost  of  its  complete  overthrow.  Without  a  foreign  war,  the  threat 
of  it,  which  any  member  of  the  Government  can  make,  has  had  very 
nearly  the  effect  of  an  actual  outbreak.  The  terrible  disasters  that 
have  been  suffered  in  the  arrest  of  industries  is  a  lesson  that  is  not  to 
be  forgotten.  So  far  as  domestic  matters  are  concerned  it  has 
taught  us  the  necessity  of  a  National  Government  of  paramount 
authority  throughout  the  length  and  breadth  of  the  land  which,  to 
all  in  affairs,  has  with  us  come  to  have  one  purpose,  and  only  one, 
the  protection  of  property  wherever  it  may  be ;  its  owners  to  have 
citizenship  wherever  they  may  be.  It  is  this  sense,  not  the  Consti- 
tution, that  has  made  us  a  nation.  Without  it,  following  the  guid- 
ance of  General  Jackson,  South  Carolina,  with  no  industries  worthy 
of  the  name,  has  throughout  been  a  free-booter  in  our  system,  as 
untamed  to-day  as  she  was  in  183 2,  when  she  passed  her  first  act  of 
secession,  the  levying  of  protective  duties  being  then  the  occasion ; 
and  in  1860,  when  she  passed  her  second  act  on  losing,  with  her 
associates,  the  control  of  the  National  Government.  Now  that  the 
practical  rules  in  affairs  she  is  to  be  taught  her  proper  place  in  our 
system,  and  that  a  very  subordinate  one.  Social  order  is  secured  in 
ratio  as  the  theoretical  is  subordinated  to  the  practical.  With  the 
supremacy  of  the  practical  the  widest  diversities  of  soil,  climate, 
production  and  race  —  elements  otherwise  too  discordant  to  be 
reconciled  —  are  compatible  with  the  highest  degree  of  social  order. 
With  adequate  means  of  distribution,  the  greater  the  diversity  of 
natural  conditions  the  greater  the  dependence  of  one  section  upon 
another  and  the  stronger  the  tie  that  holds  them  together.  General 


64       OVERTHROW    OF    BANK    AND    INFLATION    OF    CURRENCY. 

Jackson  carried  the  country  with  him,  for  the  reason  that  at  the 
time  the  people,  North  and  South,  had  so  little  at  stake  that 
the  maintenance  of  social  order  threatened  to  cost  more  than  it 
would  come  to.  With  the  means  of  a  people,  colossal  in  amount^ 
and  scattered  far  and  wide,  social  order  must  be  maintained  at  any 
cost.  The  importance  of  its  maintenance  is  greatly  increased  by 
the  tendency,  with  ample  means  of  distribution,  of  every  section  of 
the  country  to  devote  itself  to  that  kind  of  industry  to  which  by 
nature  it  is  specially  fitted,  producing  only  a  few  articles  entering 
into  general  consumption ;  all  others  to  be  reached  in  exchange  for 
those  of  its  own.  The  consequence  is  that  in  case  of  interruption 
of  industries,  carried  on  on  a  large  scale  workmen,  trained  to  one 
specialty  by  means  of  which  the  best  results  in  quality  and  quantity 
are  secured,  cannot,  when  thrown  out  of  employment,  readily  engage 
in  any  other.  Interruption  in  the  distribution  of  the  products  of  their 
industries  may  suddenly  bring  them  face  to  face  with  want.  It  is  far 
more  acutely  felt  in  commercial  and  manufacturing  than  agricultural 
districts,  as  in  the  latter  producers  may  have  the  means  of  subsist- 
ence, even  if  they  have  no  market  for  their  products.  When,  there- 
fore, the  revolutionary  elements  made  their  appeal  to  the  country, 
the  conscious  community  between  labor  and  capital,  for  the  first 
time  fully  demonstrated,  rendered  the  recent  Presidential  election 
the  event  of  our  history.  With  industrial  conditions  similar  to  those 
which  existed  in  1832  the  revolutionary  elements  of  the  country 
combined  at  Chicago  would  have  certainly  carried  the  day.  The 
result  showed  that  we  had  as  a  nation  become  a  Timocracy,  the  end 
of  which  is  secure  possession  as  well  as  freedom  of  action,  working- 
men  being  intelligently  massed  in  its  support.  In  republics  cover- 
ing a  wide  extent  of  territory,  the  function  of  their  rulers  prescribed 
by  a  law  higher  than  their  own  being  purely  administrative,  the  only 
guarantee  of  order  is  a  supreme  and  personal  sense  on  the  part  of 
the  people  of  its  value.  Of  such  governments  neither  moralists  nor 
jurists  are  necessary  to  proclaim  the  attributes.  The  kind  is  in- 
stinctive with  any  one  who  has  anything  to  lose.  The  moral  and 
social  welfare  of  every  people  is  necessarily  based  upon  their  material 
welfare.  Whatever  increases  their  material  well-being  increases 
their  moral  well-being,  and  is  consequently  an  additional  guarantee 
of  social  order.  The  inventor  by  whose  processes  the  cost  of  steel 


OVERTHROW    OF    BANK    AND    INFLATION    OF    CURRENCY.       65 

was  reduced  from  $150  to  $20  the  ton,  the  productive  capacity  of 
labor  being  increased  somewhat  in  ratio  to  the  degree  of  the  fall  in 
price,  the  gain  or  advantage  being  largely  its  own,  made  a  greater 
contribution  to  good  government  than  all  the  sages  or  jurists  that 
ever  breathed.  There  will  be  no  end  to  political  theories,  but  the 
wildest  license  may  be  safely  tolerated  so  long  as  the  people  have 
enough  at  stake  to  prefer  a  certain  present  to  an  uncertain  future. 
The  impotence  of  great  lawyers  on  the  right  side  was  strikingly 
illustrated  in  the  famous  debate  in  1830  on  what  were  termed  the 
"  Foot  Resolutions."  In  it  Mr.  Webster  won  great  fame  and  the 
title  of  the  "  Defender  of  the  Constitution,"  giving  it,  as  was  claimed, 
its  true  scope  and  meaning.  His  speeches,  eloquent  and  able  as 
they  were,  had  no  more  influence  over  the  great  question  at  issue, 
the  supremacy  of  the  Government  of  the  United  States  in  reference 
to  those  of  the  States,  than  if  they  had  been  recitations  of  "  Mother 
Goose  "  to  a  band  of  Choctaws.  His  audience,  the  people  of  the 
North,  were  at  the  time  the  most  incongruous,  distracted  and  un- 
patriotic crew  that  ever  breathed,  having  not  the  faintest  conception 
of  the  conditions  upon  which,  on  a  large  scale,  Government  and 
social  order  must  rest.  A  multitude  of  insults  at  last  taught  them 
that  one  condition  at  least  of  social  order  was  the  sword.  Mr. 
Hayne,  the  great  champion  of  the  supremacy  of  the  States  in 
relation  to  the  United  States,  and  his  audience  were  in  perfect 
accord.  He  meant  the  destruction  of  the  National  Government 
unless  his  State  could  have  its  own  way.  His  audience  applauded 
to  the  echo.  Under  such  teaching  within  two  years  the  State  of 
South  Carolina  passed  her  first  act  of  secession,  the  occasion  being 
the  protective  tariff  of  1832.  The  North,  having  little  compared 
with  the  enormous  amount  now  at  stake,  made  all  haste  to  call  back 
the  recalcitrant  member,  by  allowing  her  to  dictate  the  terms  of  her 
return,  establishing  a  precedent  justifying  to  the  letter  the  second 
act  of  secession  in  1860.  The  War  of  the  Rebellion  after  an  infi- 
nite waste  of  life  and  property  overthrew  one  of  General  Jackson's 
great  assumptions  that  every  man  was  to  be  a  law  for  himself.  Time 
unfortunately  has  only  served  to  aggravate  the  evils  resulting  from 
the  second  measure  that  distinguished  his  administration,  —  the  over- 
throw of  the  best  monetary  system  ever  created.  After  infinite  waste 
and  suffering  through  a  period  of  more  than  two  generations  the 


66       OVERTHROW    OF    BANK    AND    INFLATION    OF    CURRENCY. 

currency  of  the  Fathers  still  remains  to  be  restored.  Fortunately, 
the  great  task  can  now  be  entered  upon  with  perfect  assurance  that 
social  order  is  at  last  secure. 

In  1830,  according  to  Mr.  Gallatin,  330  banks,  including  that  of 
the  United  States,  were  in  operation.  Their  share  capital  equalled 
$145,192,268;  their  loans  and  discounts  $200,451,214;  their  note 
circulation  $61,323,928;  their  deposits  $55,559,928,  the  amount  of 
the  two,  notes  and  deposits,  equalling  $116,886,856.  As  the  veto 
was  regarded  as  decisive  of  the  fate  of  the  bank  the  State  banks 
began  to  increase  largely  their  issues  to  fill  the  vacuum  about  to  be 
created  in  the  currency.  Great  numbers  of  the  latter  were  created 
for  the  same  purpose.  With  a  large  increase  of  issues  they  could 
still  find  means  of  making  good  any  balances  arising  in  favor  of  the 
National  Bank.  So  long  as  this  was  done  no  note  of  warning  was 
heeded. 

The  first  returns  published  by  Government  of  the  operation  of 
the  banks,  including  that  of  the  United  States,  were  for  the  year 
ending  December  31,  1833.  The  number  at  that  date  was  506  ;  their 
share  capital  $200,005,944  ;  their  loans  and  discounts  $325,1 19,499  ; 
their  note  circulation  $94,834,970 ;  their  deposits  $75,666,986.  The 
aggregate  of  their  notes  and  deposits  was  $170,501,956. 

On  the  first  day  of  January,  1837,  788  banks  were  in  operation. 
Their  share  capital  equalled  $290,772,091;  their  loans  and  dis- 
counts $525,115,702;  their  note  circulation  $149,185,890;  their 
deposits  $127,397,185;  their  notes  and  deposits  $276,583,075,  the 
increase  of  the  latter  over  the  issues  of  1834  being  $106,071,119; 
over  1830,  $159,646,219,  the  rate  of  increase  being  about  140 
per  cent.  At  a  normal  rate  of  increase  the  notes  and  deposits  in 
the  banks  January  i,  1837,  would  have  been  about  $160,000,- 
ooo,  a  sum  $100,000,000  less  than  the  actual  amount.  The  infla- 
tion was  largely  in  the  south  and  south-western  divisions,  as  shown 
in  the  following  statement : 


OVERTHROW    OF    BANK    AND    INFLATION    OF    CURRENCY.       67 


Statement  showing,  b.y  divisions,  the  number,  share  capital,  loans  and  discounts,  and  the 
notes  and  deposits  and  the  aggregate  of  the  same,  for  each  year,  of  all  the  banks  in  the 
United  States,  January  i,  1830  and  1837,  and  the  totals  for  each  year  : 


DIVISIONS. 

1830. 

•sjg 

II 

iS37- 

•S3 

oS 

ZX 

1830. 
Share 
Capital. 

c'£37- 
Share 

Capital. 

1830. 

Notes  in 
Circulation. 

1830. 
Deposits. 

1830. 
Total  Notes 
and 
Deposits. 

*-jc  2Q7  S6o 

$62  172  72O 

Middle  

116 

82  Q7Q  784 

41  860  028 

7o  088  iS? 

Southern  

22 

82 

18,500,129 

10,683,860 

5,377,890 

16,061,750 

Southwestern 

S 

83 

6,775.900 

62,307,111 

3,73S,i36 

2,746,860 

6,484,996 

Western  

P 

13 

7S 

1,639,386 

21,392,863 

1,000,000 

583,610 

1,583,610 

Totals  

330 

788 

$145,192,268 

$290,772,091 

$61,323,898 

$55,559,928 

$116,883,826 

DIVISIONS. 

1837- 

1830. 

1837- 

Notes  in 
Circulation. 

Deposits. 

Total  Notes 
and 
Deposits. 

Loans  and 
Discounts. 

Loans  and 
Discounts. 

Increase  of 
Loans  and 
Discounts. 

$22,513,292 

56,524,339 
28,483,170 
24,346,667 
17,318,422 

$15,505,933 
55,342,290 
15,182,406 
22,137,627 
19,228,928 

$39,019,225 
111,866,629 
43,665,576 
46,404,294 
36,547,350 

$40,480,651 
1  16,836,910 
24,978,694 
10,954,891 
1,865,678 

$98,651,703 
211,440,794 
62,035,190 
112,554,311 
40,438,704 

$51,571,086 
95,203,804 
37,356,496 
101,969,029 
38,573,026 

Middle 

Southern  
Southwestern.  . 
'Western  

Totals  

$149,185,890 

$127,397,185 

$276,583,075 

$200,451,214 

$525,  "5,702;  $324,564,338 

The  eastern  division  included  Maine,  New  Hampshire,  Vermont,  Massachu- 
setts, Rhode  Island,  and  Connecticut. 

The  middle  included  New  York,  Pennsylvania,  New  Jersey,  Delaware,  Mary- 
land, and  the  District  of  Columbia. 

The  southern  included  Virginia,  North  Carolina,  South  Carolina,  Georgia,  and 
Florida. 

The  south-western  included  Alabama,  Louisiana,    Mississippi,    Arkansas,  and 
Tennessee. 

The  western  included  Kentucky,  Missouri,  Illinois,  Indiana,  Ohio,  Michigan, 
and  Wisconsin. 

The    wild   delirium    of  speculation   and  waste  due    to    the    vast 
increase  of  the  currency,  rivalled  that  which  followed  the  winding 


68       OVERTHROW    OF    BANK    AND    INFLATION    OF    CURRENCY. 

up  of  the  first  bank  \  the  cause,  in  both  instances,  being  the  same, 
the  entire  withdrawal  of  superintendence  by  the  National  Gov- 
ernment. It  will  be  readily  understood  by  those  who  were  wit- 
nesses of  the  scenes  which  in  the  war  of  the  Rebellion  followed  the 
issue  of  the  legal  tender  notes  of  the  Government. 

A  striking  illustration  of  the  spirit  of  speculation  that  was 
created  was  the  increased  purchase  of  the  public  lands.  The  fol- 
lowing statement  will  show  the  number  of  acres  sold,  and  the 
amounts  received  therefor,  each  year,  from  1832  to  1838  inclusive  : 

Amount  Amount 

Years.  Acres  Sold.         Received.  Years.  Acres  Sold.          Received< 

1832  .      .         2,462,342      $3,115,376          1836      .      .      20,074,870    $25,167,833 

1833  .  .   3,856,227   4,972,284   1837  .  .   5,601,103   7,007,523 

1834  .  .   4,658,218   6,099,981   1838  .  .   3,414,907   4,305,564 

1835  .  .  12,364,478   15,999,804 

For  the  years  1835  and  1836  the  sum  received  equalled  $41,167,- 
637,  the  average  amount  for  the  two  years  being  nearly  seven- 
fold greater  than  for  1832,  a  year  of  extraordinary  activity  in  affairs. 
The  moneys  received  therefor  were  the  notes  of  the  State  banks, 
largely  in  the  West.  In  1836  an  act  was  passed  by  Congress  for 
the  deposit  of  $37,267,618,  the  proceeds  of  the  sales,  with  the  States 
in  ratio  to  their  representation  in  Congress.  The  deposits  were  to 
be  made  quarterly,  in  four  equal  sums,  the  first  to  be  made  January 
i,  1837.  The  withdrawal  of  such  a  vast  sum  from  the  banks,  to  be 
paid  in  specie  or  its  equivalent,  was  one  of  the  causes  that  precipi- 
tated the  suspension  of  specie  payment. 

Another  striking  illustration  of  the  effect  of  the  withdrawal  of  the 
United  States  from  all  supervision  of  the  currency  was  the  vast  in- 
crease of  banks  in  western  and  south-western  States.  In  this  the 
State  of  Mississippi  was  conspicuous.  The  following  statement  will 
show  the  number  of  banks,  their  share  capital,  loans  and  discounts, 
note  circulation  and  deposits,  of  the  State,  from  January  i,  1834, 
to  January  i,  1840,  inclusive  : 


OVERTHROW    OF    BANK    AND    INFLATION    OF    CURRENCY.       69 


YEARS. 

No.  of 
Banks. 

Share  of 
Capital. 

Loans  and 
Discounts. 

Note 

Circulation. 

Deposits. 

Specie. 

1834  
,«o-     . 

$2,666,805 

$5,461,464 
10,379,651 

$1,510,426 
2,418,475 

$545,353 
1,888,762 

$113,220 
359,302 

1836  
lSV7... 

J3 
iS 

S,764,SSo 

12  S72  Si? 

19,124,977 
24,^1,414 

4,490,521 
5,073,425 

6,401,518 
5,345,384 

659.470 
1,369,457 

!S3S  

26 

JQ  231   121, 

28,999,984 

7,472,334 

4,638,669 

766,360 

iS^Q.  •  • 

26 

•7Q    'iVO.dO? 

48,333,728 

15,171,639 

8,691,601 

867,977 

The  following  statement  will  show  the  extent  of  the  banking  opera- 
tions in  Mississippi  on  Jan.  i,  1840,  compared  with  those  of  the  States 
of  New  York,  Massachusetts,  and  Pennsylvania: 


STATES. 

Free 
Popula- 
tion. 

ol 

l» 

Share 
Capital. 

Loans  and 
Discounts. 

Note 
Circula- 
tion. 

Deposits. 

Specie. 

Mississippi  ... 

170,000 

26 

$30,379,403 

$48,333,728 

$15,171,639 

$8,691,601 

$867,977 

New  York  .  .  . 

2,400,000 

98 

37,101,460 

79,3i3,iSS 

24,198,000 

30,883,179 

6,857,020 

Massachusetts, 

730,000 

117 

34,4/8,110 

56,643,172 

10,892,249 

8,784,516 

i,455}230 

Pennsylvania, 

1,700,000 

49 

23,75o,33S 

44,601,930 

13,749,014 

12,902,250 

3,II3,990 

The  amount  of  loans  and  discounts  of  the  banks  of  Mississippi 
equalled  $285  per  head  of  free  population  ;  their  circulation,  includ- 
ing deposits,  $140  per  head.  Those  of  the  banks  of  the  State  of 
New  York  equalled  $30  per  head  ;  their  circulation,  including  deposits, 
equalled  $23  per  head. 

For  two  banks  the  State,  by  an  issue  of  its  bonds,  supplied  capital 
to  the  amount  of  $7,000,000  :  for  the  Planters,  $2,000,000 ;  for 
the  Union,  $5,000,000.  In  1840  the  whole  system  exploded; 
passed  entirely  out  of  existence.  No  trace  of  them  thereafter 
is  to  be  found  in  the  reports  of  the  Government.  Their  share 
capital,  whatever  the  amount  provided,  was  wholly  wasted.  Their 
loans  were  never  paid.  Their  notes  and  deposits  were  wholly 
repudiated.  The  whole  system  fell  a  huge  and  rotten  mass  to  the 
ground.  With  the  failure  of  the  Planters  and  Union  Banks  the 
interest  on  the  bonds  issued  to  provide  the  capital  therefor 
ceased.  The  bonds  were  sold  abroad  at  their  full  value.  Failing 


7O       OVERTHROW    OF    BANK    AND    INFLATION    OF    CURRENCY. 

to  receive  any  returns,  the  holders  naturally  became  importunate. 
They  could,  however,  do  little  but  remonstrate,  as  "  Mississippi 
was  a  sovereign  State."  The  payment  of  the  bonds  issued  on 
account  of  the  Union  Bank  was  sought  to  be  avoided  on  the  ground 
of  some  informality  in  their  issue.  The  State,  however,  graciously 
allowed  the  legality  of  the  bonds  to  be  determined  by  its  highest 
judicial  tribunal.  That  tribunal  decided  that  the  bonds  were 
well  issued,  and  were  obligations  binding  on  the  State.  But  as 
no  process  could  issue  against  a  "Sovereign  State,"  all  the  bond- 
holders took  in  this  case  was  a  bootless  decision  in  their  favor. 

The  holders  of  the  bonds  issued  by  the  Planters  Bank,  the 
regularity  of  the  issue  of  which  was  never  questioned,  were 
equally  persistent  in  their  efforts  for  redress.  So  late  as  1853  they 
obtained  from  the  Legislature  of  the  State,  twelve  years  after  default 
in  payment  of  interest,  an  act  referring  the  question  of  their  pay- 
ment to  the  people.  These  "  rose  in  their  majesty,"  to  quote  the 
language  which  reported  their  great  achievement,  and  voted  that 
the  bonds  should  not  be  paid  !  Having  exhausted  all  remedies 
open  to  them  in  the  Legislature  of  the  State,  as  well  as  in  the  courts 
of  conscience  and  law,  the  unlucky  holders  of  both  classes  of 
bonds,  seeing  nothing  in  store  for  them  but  continued  losses  and 
insults,  slowly  and  sullenly  retired  from  the  contest. 

From  the  explosion  in  1840  of  the  banking  system  of  Mississippi 
no  trace  of  a  bank  appeared  in  that  State  for  nearly  twenty  years. 
The  people  were  too  poor  to  provide  the  means  and  too  dishonest 
to  be  entrusted  with  other  people's  money.  In  the  Constitution  of 
the  State,  adopted  January  i,  1890,  a  clause  was  inserted  providing 
that  "  No  future  Legislature  shall  assume,  secure,  or  pay  any  indebt- 
edness or  pretended  indebtedness  alleged  to  be  due  by  the  State  of 
Mississippi  to  any  person,  association,  or  corporation  whatever, 
claiming  the  same  as  owner,  holder  or  assignee  of  any  bond  or  bonds 
now  generally  known  as  the  Union  Bank  and  Planters  Bank  bonds," 
—  the  first  instance  in  history  of  a  people  emblazoning  their  infamy 
in  their  organic  law. 

The  State  of  Ohio  afforded  another  pertinent  illustration  of  what 
was  going  on  in  nearly  all  the  States.  At  the  close  of  1833  there 
were  in  it  twenty-four  banks,  the  share  capital  of  which  equalled 
$5,819,692;  their  circulation,  $5,221,520;  their  deposits,  $2,090,- 
065;  their  loans  and  discounts,  $9,751,973.  In  1837  the  number 


OVERTHROW    OF    BANK    AND    INFLATION    OF    CURRENCY.       ^1 

of  banks  had  increased  to  thirty-two;  their  share  capital  to  $9,247,- 
246  ;  their  circulation  to  $8,326,974  ;  their  deposits  to  $7,590,933  ; 
their  loans  and  discounts  to  $18,178,699.  In  1844,  the  year  after 
specie  payments  were  fully  resumed,  the  number  of  banks  was 
reduced  to  eight;  their  share  capital  to  $2,167,628;  their  note 
circulation  to  $2,246,999;  their  deposits  to  $505,430;  their  loans 
and  discounts  to  $2,968,441. 

In  the  want  of  some  controlling  power  every  western  State  was 
hatching  some  new  system  of  paper  money.  So  late  as  1852  an 
act  was  passed  by  the  State  of  Indiana  providing  for  an  issue  by 
banks  upon  the  deposit  by  them  of  the  bonds  of  the  United  States 
or  of  the  several  States.  The  law  did  not  require  either  the  stock- 
holders or  directors  of  banks  to  reside  within  the  State.  The 
manner  in  which  banks  were  gotten  up  and  utilized  is  well  told  by 
the  following  extract  from  the  message,  in  1853,  of  the  Governor  to 
the  Legislature  of  the  State  : 

The  speculator  comes  to  Indianapolis  with  a  bundle  of  bank-notes  in  one  hand 
and  the  stock  in  the  other;  in  twenty-four  hours  he  is  on  the  way  to  some  distant 
point  of  the  Union,  to  circulate  what  he  denominates  a  legal  currency  authorized 
by  the  Legislature  of  Indiana.  He  has  nominally  located  his  bank  in  some 
remote  part  of  the  State,  difficult  of  access,  where  he  knows  no  banking  facilities 
are  required,  and  intends  that  his  notes  shall  go  into  the  hands  of  persons  who 
have  no  means  of  demanding  their  redemption. 

As  a  matter  of  course  the  State  bonds  deposited  had  often  little 
value.  In  1854,  under  the  above  Act,  eighty-six  banks  had  been 
established.  The  returns  from  sixty-seven  of  these  for  that  year 
showed  a  share  capital  of  $32,900,000;  a  note  circulation  of 
$7,425,000.  In  1856,  by  the  failure  of  banks,  the  share  capital  of 
those  that  remained  equalled  $4,045,325  ;  their  notes,  which  were 
selling  all  the  way  from  25  to  75  cents  on  the  dollar,  were  reduced 
to  $4,516,422.  In  a  year  or  two  following  not  a  trace  of  the  new 
"  Safety  Fund  System,"  as  it  was  called,  remained.  The  history  of 
many  other  States  was  the  same  in  kind. 

In  his  farewell  address,  of  March  3,  1837,  the  "Banks"  were, 
throughout,  General  Jackson's  great  theme  : 

It  is  one  of  the  serious  evils  of  our  present  system  of  banking,  that  it  enables 
one  class  of  society  —  and  that  by-' no  means  a  numerous  one  —  by  its  control 


72       OVERTHROW    OF    BANK    AND    INFLATION    OF    CURRENCY. 

over  the  currency,  to  act  injuriously  upon  the  interests  of  all  the  others,  and  to- 
exercise  more  than  its  just  proportion  of  influence  in  political  affairs 

The  planter,  the  farmer,  the  mechanic,  and  the  laborer,  all  know  that  t-heir 
success  depends  upon  their  own  industry  and  economy,  and  that  they  must  not 
expect  to  become  suddenly  rich  by  the  fruits  of  their  toil.  Yet  these  classes  of 
society  form  the  great  body  of  the  people  of  the  United  States  ;  they  are  the 
bone  and  sinew  of  the  country ;  men  who  love  liberty,  and  desire  nothing  but 
equal  rights  and  equal  laws,  and  who,  moreover,  hold  the  great  mass  of  our 
national  wealth,  although  it  is  distributed  in  moderate  amounts  among  the  mil- 
lions of  freemen  who  possess  it.  But  with  overwhelming  numbers  and  wealth  on 
their  side  they  are  in  constant  danger  of  losing  their  fair  influence  in  the  govern- 
ment, and  with  difficulty  maintain  their  just  rights  against  the  incessant  efforts 
daily  made  to  encroach  upon  them. 

The  mischief  springs  from  the  power  which  the  moneyed  interest  derives  from 
a  paper  currency  which  they  are  able  to  control,  from  the  multitude  of  corpo- 
rations with  exclusive  privileges,  which  they  have  succeeded  in  obtaining  from 
the  different  States,  and  which  are  employed  altogether  for  their  benefit  ;  and 
unless  you  become  more  watchful  in  your  States,  and  check  this  spirit  of 
monopoly  and  thirst  for  exclusive  privileges,  you  will,  in  the  end,  find  that  the 
most  important  powers  of  government  have  been  given  or  bartered  away,  and  the 
control  of  your  dearest  interests  has  passed  into  the  hands  of  these  corporations. 

The  paper-money  system,  and  its  natural  associates,  monopoly  and  exclusive 
privileges,  have  already  struck  their  roots  deep  in  the  soil  ;  and  it  will  require  all 
your  efforts  to  check  its  further  growth,  and  to  eradicate  the  evil.  The  men  who 
profit  by  the  abuses,  and  desire  to  perpetuate  them,  will  continue  to  besiege  the 
halls  of  legislation  in  the  general  government  as  well  as  in  the  States,  and  will 
seek,  by  every  artifice,  to  mislead  and  deceive  the  public  servants.  It  is  to  your- 
selves that  you  must  look  for  safety,  and  the  means  of  guarding  and  perpetuating 
your  free  institutions.  In  your  hands  is  rightfully  placed  the  sovereignty  of  the 
country,  and  to  you  every  one  placed  in  authority  is  ultimately  responsible.  It  is 
always  in  your  power  to  see  that  the  wishes  of  the  people  are  carried  into  faithful 
execution,  and  their  will,  when  once  made  known,  must  sooner  or  later  be 
obeyed.  And  while  the  people  remain,  as  I  trust  they  ever  will,  uncorrupted 
and  incorruptible,  and  continue  watchful  and  jealous  of  their  rights,  the  govern- 
ment is  safe,  and  the  cause  of  freedom  will  continue  to  triumph  over  all  its  ene- 
mies. 

But  it  will  require  steady  and  persevering  exertions  on  your  part  to  rid  your- 
self of  the  iniquities  and  mischiefs  of  the  paper  system,  and  to  check  the  spirit  of 
monopoly  and  other  abuses  which  have  sprung  up  with  it,  and  of  which  it  is  the 
main  support.  So  many  interests  have  united  to  resist  all  reform  on  this  subject, 
that  you  must  not  hope  the  conflict  will  be  a  short  one>  nor  success  easy.  My 
humble  efforts  have  not  been  spared,  during  my  administration  of  the  govern- 
ment, to  restore  the  constitutional  currency  of  gold  and  silver  ;  and  something,  I 
trust,  has  been  done  toward  the  accomplishment  of  this  most  desirable  object.  But 
enough  yet  remains  to  require  all  your  energy  and  perseverance.  The  power, 
however,  is  in  your  hands,  and  the  remedy  must  and  will  be  applied,  if  you 
determine  upon  it. 


OVERTHROW    OF    BANK    AND    INFLATION    OF    CURRENCY.        73 

The  preceding  extracts  are  given  not  so  much  to  be  replied  to 
as  by  way  of  illustration  of  the  manner  in  which  our  people  have 
been  swayed  by  demagogues,  of  whom  General  Jackson  was  the 
conspicuous  example.  One  form  of  currency  was  bills  serving  in  the 
place  of  metallic  money  for  the  transfer  of  merchandise,  in  gross. 
To  these  certainly  no  objections  could  be  raised.  The  notes  and 
credits  of  banks  issued  in  their  discount  served  for  its  transfer 
from  merchant  to  consumer.  The  two  forms  of  credit  dis- 
charging capital  from  the  exchanges  were  precisely  the  same 
in  kind.  None  other  will  ever  be  used  in  commercial  countries  like 
the  United  States  as  the  ordinary  instruments  of  exchange  unless 
it  be  an  imposed  one  of  government  notes,  but  in  such  case  the 
issues  of  banks  and  bankers  will  equal  in  nominal  amount  the  value 
of  the  subjects  of  consumption,  the  imposed  one  being  wholly 
superfluous.  When  a  bill  is  drawn  the  first  step  of  the  holder  is  to 
apply  to  the  banks,  not  to  the  government,  to  turn  it  into  money. 
Government  is  never  present  in  such  transactions  as  these.  Its 
issues  are  made  for  the  acquisition  of  capital  for  consumption,  not 
primarily  as  instruments  of  distribution.  There  could,  at  the  time, 
have  been  no  monopoly  of  issue,  as  charters  for  banks  were  always 
to  be  had  for  the  asking.  That  there  was  no  monopoly  was  well 
shown  by  the  fact  that  from  1830  to  1837  the  number  of  banks 
increased  from  three  hundred  and  twenty-nine  to  seven  hundred  and 
eighty-eight;  their  share  capital,  from  $145,192,268  to  $290,772,- 
091  ;  their  loans  and  discounts  from  $200,451,214  to  $5 2 5, 115, 702  ; 
their  notes  and  deposits  from  $116,883,826  to  $276,583,075.  As 
the  veto  of  1832  was  conclusive  of  the  fate  of  the  bank  its  interest 
for  the  maintenance  of  a  sound  currency  was  of  course  greatly 
weakened.  Up  to  1834  the  State  banks  were  able  to  provide  for 
the  balances  found  against  them.  From  the  removal  of  the  deposits 
in  that  year,  the  revenues  being  paid  into  and  held  by  the  "  Pet 
Banks,"  all  control  over  the  currency  from  any  quarter  was  at  an 
end,  all  the  banks  vying  with  each  other  in  the  amount  of  their 
loans  and  issues.1 

1  "That  the  reader,"  says  Parton,  "may  see  the  movements  of  this  gentle- 
man (Isaac  Hill)  as  they  appeared  to  General  Jackson,  and  that  he  may  fully 
understand  the  process  by  which  the  administration  was  brought  into  collision  with 
the  parent  bank,  I  will  present  here  a  brief  condensation  of  the  papers  and  let- 
ters relating  to  the  Portsmouth  affair,  in  the  order  in  which  they  were  produced. 


74       OVERTHROW    OF    BANK    AND    INFLATION    OF    CURRENCY. 

The  great  mission,  in  his  own  words,  of  General  Jackson  was  the 
"restoration  of  the  money,  gold  and  silver,  of  the  Constitution." 
The  necessary  effect  of  every  step  he  took  in  his  work  of  restora- 
tion was  to  drive  gold  and  silver  out  of  circulation  and  to  substitute 
in  their  place  vast  issues  of  the  rottenest  monetary  system  ever  created. 
Having  accomplished  the  great  work  of  his  life  he  prayed  that, 
"broken  with  the  cares  of  the  State  which  he  had  so  long  and  faith- 
fully served,  he  might  at  last  be  allowed  to  depart  in  peace." 

Hardly  were  the  words  of  his  "  Farewell  Address  "  out  of  his  mouth 
when,  early  in  May,  1837,  came  the  inevitable  and  terrible  explosion, 
—  the  suspension  of  specie  payments  by  all  the  banks,  to  be  followed 
by  a  process  of  liquidation  so  severe  that  six  years  elapsed  before 
the  country  was  again  fairly  on  its  feet.  The  process  went  on  until 
in  1843  the  notes  of  the  banks  were  reduced  from  $149,185,890  in 
1837  to  $58,563,608 ;  their  deposits  from  $127,397,185  to  $56,116, 
623  ;  the  aggregate  of  the  two  in  1843  being  $114,680,231,  a  sum 
$161,902,844  less  than  the  aggregate  for  1837,  and  $2,203,495  less 
than  that  for  1830.  At  the  rate  of  increase,  forty-five  per  cent., 
from  1820  to  1830  the  amount  of  notes  and  credits  of  the  banks 


The  correspondence  began  in  June  and  ended  in  October.  I  believe  myself  war- 
ranted in  the  positive  assertion,  that  this  correspondence  relating  to  the  desired 
removal  of  Jeremiah  Mason  was  the  direct  and  real  cause  of  the  destruction  of 
the  bank.  If  the  bank  had  been  complaisant  enough  to  remove  a  faithful  ser- 
vant, General  Jackson,  I  am  convinced,  would  never  have  opposed  the  recharter- 
ing  of  the  institution."  — Life  of  General  Jackson,  by  James  Parian.  Vol.  ///., 
page  260. 

•  An  earlier  affront,  undoubtedly,  still  rankled  in  General  Jackson's  bosom. 
"An  incident,"  to  quote  further  from  Parton,  "  occurred  during  the  stay  of  Gen- 
eral Jackson  at  New  Orleans,  which  was  afterwards  supposed  to  have  made  a 
lasting  impression  upon  his  mind,  and  to  have  been  a  remote  cause  of  important 
events.  He  came  into  collision  with  the  Bank  of  the  United  States.  Desiring 
to  take  with  him  to  Florida  a  sum  of  money,  with  which  to  defray  the  first 
expenses  of  organizing  his  government,  he  sent  an  aide-de-camp  to  the  branch  of 
the  United  States  Bank  at  New  Orleans  to  learn  whether  the  bank  would  advance 
ten  or  fifteen  thousand  dollars  on  a  draft  to  be  drawn  by  General  Jackson  upon 
the  Department  of  State.  The  messenger  returned  with  the  reply  that  the  branch 
bank  had  no  authority  to  advance  money  upon  drafts.  The  mother  bank,  said 
the  cashier,  had  expressly  forbidden  him  to  negotiate  drafts.  The  aide-de-camp 
remonstrated,  and  pointed  out  the  inconvenience  that  might  result  from  the 
refusal;  but  the  cashier  was  immovable,  as  he  was  bound  to  be." — Ibid.  Vol. 
II.,  p.  596. 


OVERTHROW    OF    BANK    AND    INFLATION    OF    CURRENCY.        75 

in  1837  would  have  equalled  $152,000,000,  a  sum  $124,000,000  less 
the  amount  of  that  year.1  At  the  same  rate  of  increase  their  notes 
and  credits  would,  in  1840,  have  equalled  $169,443,826,  and  in 

1  Statement  showing  the  Number,  Amount  of  Share  Capital,  Loans  and  Discounts,  Note 
Circulation,  and  Deposits  of  the  Banks  and  Branches  of  the  same,  and  the  Value  of 
Imports  and  Exports  of  the  United  States,  from  1830  to  1845,  inclusive. 


VKAKS. 

Number 
of 
Banks. 

Share 
Capital. 

Loans  and 
Discounts. 

Note 
Circulation. 

Deposits. 

Imports. 

Exports. 

1830.. 

330 

$145,192,268 

$200,451,214 

$61,323,928 

$55,559,928 

$70,876,920 

$73,849,508 

1833-. 

506 

200,005,944 

365,163,834 

103,692,445 

83,081,365 

126,521,332!    104,336,973 

1834-. 
I33S-. 

699 
7J3 

231,250,337 

251,875,292 

457,506,080 
525,!  15,702 

140,301,038 
149,185,890 

1  15,104,4401     140,897,742 
i  27,397,  185'    189,980,035 

121,693,577 
128,663,046 

1836.. 
1837.- 

788 
829 

290,772,091 
3>7»635>77S 

485,631,687 

492,278,015 

116,338,910 
135,170,995 

84,691,184 
90,240,146 

140,989,217 
"3,717,404 

"7,419,376 
108,486,616 

1838.. 

S4o 

327,i32,Si2     462,896,523 

106,968,572       75,696,857 

162,092,132 

121,028,416 

1839.. 
1840.. 

S6o 
S6i 

363,629,227     386,487,662 
I 
313,608,959     323,957,569 

107,290,214 
S3,734,on 

64,890,101 
62,408,870 

107,141,519 
127,946,177 

132,085,946 
121,851,803 

1841.- 

784 

260,171,797     254,544,937 

58,563,608 

*  56,168,628 

100,162,087 

104,691,534 

1842.. 

692 

228,861,948 

264,905,814 

75,167,646 

84,550,785 

86,338,398 

112,461,973 

1843-. 

691 

210,872,056     288,617,131 

89,608,711 

88,020,646 

108,435,035 

111,200,146 

1844-. 

696 

206,045,969     312,114,404 

105,552,427 

96,913,070 

"7,254,564 

114,654,606 

1845.- 

707 

196,894,309     311,282,945 

105,519,766       91,752,533 

121,691,797 

113,648,622 

76   OVERTHROW  OF  BANK  AND  INFLATION  OF  CURRENCY. 

1843,  $194,944,826,  a  sum  $80,000,000  greater  than  the  amount 
then  outstanding.  It  was  not  until  1851,  eighteen  years  after  the 
tide  turned  in  1843,  that  the  notes  and  credits  of  the  banks 
exceeded  the  aggregate  for  1837,  the  amount  for  1851  being 
$284,122,883,  of  which  $155,165,281  were  notes,  and  $128,- 
957,602  were  deposits.  The  country  was  in  a  far  worse  condition 
in  1843  than  in  1830.  For  thirteen  years  instead  of  progress  there 
was  a  steady  retrocession,  not  only  in  its  material  but  in  its  moral 
welfare,  a  strange  spectacle  for  the  "Model  Republic."  The  disas- 
ters from  the  occupation  and  ravage  of  every  section  of  the  country 
by  a  foreign  foe  could  not  have  exceeded  those  which  resulted  from 
Jackson's  experiment  for  the  "  restoration  of  the  money  of  the  Con- 
stitution." Strange  to  say,  the  author  of  the  disasters  described 
has  always  remained  the  idol  of  the  nation  to  the  undoing  of  which, 
as  far  as  was  possible,  he  was  the  chief  instrument,  for  the  War  of 
the  Rebellion,  as  well  as  the  worst  currency  possible,  of  debt  instead 
of  capital,  with  all  the  terrible  calamities  which  followed,  were  the 
direct  result  of  the  overthrow  by  him  of  the  authority  of  the  Supreme 
Court,  which,  instead  of  a  loose  confederacy,  dissolvable  upon  the 
motion  of  any  member,  had  declared  us  to  be  a  nation,  competent 
to  deal  with  all  matters  that  concerned  its  existence,  as  well  as  the 
common  welfare. 

The  preceding  statements,  so  far  as  the  bank  is  concerned,  are 
compiled  from  the  reports  of  the  department  of  the  Treasury, 
entitled  "State  Banks  of  the  United  States."  After  1837  returns 
appear  to  have  been  made  by  great  numbers  of  banks  which  had 
discontinued  business,  years  being  required  to  wind  up  their  affairs. 
The  great  disaster  of  1837  by  no  means  put  an  end,  as  has  been 
shown,  to  the  creation  of  new  banks,  mostly  of  small  capital,  in  the 
rural  districts. 

In  1841  a  bill  passed  both  houses  of  Congress  for  the  creation  of 
a  third  National  Bank.  It  was  vetoed  by  Mr.  Tyler,  a  pronounced 
"States'  rights  "  man,  whom  the  Whigs,  for  the  purpose  of  uniting 
all  elements  in  opposition  to  Mr.  Van  Buren,  had  nominated  for  the 
vice-presidency,  and  who  became  president  upon  the  death  of 
General  Harrison.  From  its  defeat  no  other  proposition  for  any 
National  Bank  was  ever  made. 

Mr.  Van  Buren,  who,  March  4,  1837,  succeeded  General  Jackson 
in  the  presidency,  pledged  to  walk  in  his  footsteps,  was,  up  to  the 


OVERTHROW    OF    BANK    AND    INFLATION    OF    CURRENCY.        77 

great  explosion,  as  unconscious  as  his  illustrious  predecessor  of 
the  volcano  beneath  his  feet.  He  woke  up  one  morning,  to  use 
the  language  of  Mr.  Benton,  "  with  large  balances  on  its  books  in 
favor  of  the  Government,  but  without  the  means  of  paying  a  day's 
wages  to  the  meanest  official  in  its  service,"  except  in  the  notes  of 
the  broken  State  Banks.  An  issue  of  treasury  notes  to  tide  over  the 
immediate  necessities  of  the  government  was  made  with  all  speed. 
The  next  and  obvious  step  would  have  been  the  restoration,  follow- 
ing the  example  of  1816,  of  the  currency  by  the  creation  of  a  third 
National  Bank.  That  it  was  not  taken  was  due  to  the  fact  that  in 
the  period  which  had  dapsed  from  the  creation  of  the  Second  Bank 
the  South  had  learned  a  new  lesson,  that  she  was  being  rapidly  out- 
stripped by  the  North  in  numbers  and  wealth  from  the  exercise  by 
Congress  of  implied  powers,  the  most  obvious  example  being  legis- 
lation for  the  encouragement  of  domestic  industries  in  which,  from 
the  ignorance  and  poverty  of  her  people,  she  could  not  engage.  The 
North  cheerfully  paid  protective  duties,  domestic  markets  being 
thereby  created  for  her  products.  To  the  South,  which  had  no 
industries  to  protect,  the  duties  levied  were  taxes  imposed  upon  one 
section  of  the  country  for  the  benefit  of  another,  and,  consequently, 
unconstitutional,  there  being  no  direct  warrant  therefor.  By  a 
necessary  inference  an  act,  being  the  exercise  of  implicit  powers,  for 
the  creation  of  the  bank  was  unconstitutional.  Every  exercise  of 
implied  powers  was  unconstitutional,  as  it  inured  to  the  benefit  of 
one  section  at  the  expense  of  another.  If  a  state  or  political  body 
was  competent  to  declare  the  meaning  of  the  Constitution  it  was 
competent  to  enforce  its  meaning.  Such  was  the  objection  to  implied 
powers,  their  exercise  being  unconstitutional,  to  be  resisted  by  force 
by  those  assumed  to  be  injured  by  them.  But  where  were  the  North 
and  East  when  a  construction  of  the  Constitution,  so  destructive  to  their 
welfare,  was  established  as  the  law  of  the  land  ?  —  Sold  out  to  South 
Carolina  and  her  sister  States,  immunity  for  their  peculiar  institution 
being  the  consideration  on  one  side,  and  official  stations  and  public 
plunder  to  the  contingent  of  northern  mercenaries  ever  ready  to 
assail  the  Government  and  social  order  for  a  mess  of  pottage,  on 
the  other.  The  very  elements  and  conditions  upon  which  a  gov- 
ernment worthy  the  name  must  rest  for  support  were  overthrown, 
our  own  being  reduced  to  a  condition  of  complete  imbecility. 

Jackson  taught  the  doctrine  that  each  individual  was  to  determine 


78       OVERTHROW    OF    BANK    AND    INFLATION'    OF    CURRENCY. 

for  himself  the  meaning  of  the  Constitution.  As  was  inevitable  his 
construction  speedily  became  the  publicly  pronounced  creed  of  the 
party,  the  first  regular  National  Democratic  Convention  ever  held, 
which  nominated  Mr.  Van  Buren  for  his  second  term,  resolving  that : 

Congress  has  no  power  to  charter  a  United  States  Bank;  that  we  believe 
such  an  institution  one  of  deadly  hostility  to  the  best  interests  of  the  country, 
dangerous  to  our  Republican  institutions  and  the  liberties  of  the  people,  and  cal- 
culated to  place  the  business  of  the  country  within  the  control  of  a  concentrated 
money  power,  and  above  the  laws  and  the  will  of  the  people. 

This  resolution  was  followed  by  another,  directed  against  the  exer- 
cise of  implied  powers  : 

The  Federal  Government  is  one  of  "  limited  powers,"  derived  solely  from 
the  Constitution,  and  the  grants  of  power  shown  therein  ought  to  be  strictly 
construed  by  all  the  departments  and  agents  of  the  Government,  and  that  it  is 
inexpedient  and  dangerous  to  exercise  doubtful  constitutional  powers. 

Mr.  Van  Buren,  in  his  reply  to  the  communication  informing  him 
of  his  nomination,  accepted  unreservedly  every  resolution  in  the 
platform,  adding  that : 

Thomas  Jefferson  has  taught  us,  that  to  preserve  that  common  sympathy 
between  the  States,  out  of  -which  the  Union  sprang,  and  which  constitutes  its 
surest  foundation,  we  should  exercise  the  powers  which  of  right  belong  to  the 
general  government  in  a  spirit  of  moderation  and  brotherly  love,  and  religiously 
abstain  from  such  as  have  not  been  delegated  by  the  Constitution. 

The  Constitution  provided  that  "  the  Supreme  Court  of  the  United 
States  shall  have  jurisdiction  in  all  matters  of  law  and  equity  arising 
under  it."  That  august  tribunal,  in  1819,  declared,  in  the  celebrated 
case  of  McCullough,  against  the  State  of  Maryland,  that  the  National 
Government  sprang  from  the  people,  not  from  the  States,  and  that  it 
was  one  of  unlimited  powers  as  to  everything  that  came  within  its 
scope,  the  creation  of  a  bank  by  the  exercise  of  implied  powers 
being  an  illustration.1  In  both  of  these  assumptions,  that  tribunal 

1  The  decision  of  the  Supreme  Court  to  which  General  Jackson  referred 
was  that  of  McCulloch  against  the  State  of  Maryland.  In  1818  that  State 
passed  an  act  for  taxing  the  assets  and  operations  of  the  Baltimore  branch  of 
the  bank.  In  a  suit  in  her  behalf  in  her  own  courts  judgment  was  rendered 
in  her  faver.  The  position  taken  was  that  the  State,  being  sovereign,  could  levy 


OVERTHROW    OF    BANK    AND    INFLATION    OF    CURRENCY.        79 

was  overruled  by  a  political  party,  by  declarations  repeated  thereafter 
by  every  national  gathering  down  to  and  including  the  nomination 
of  Mr.  Buchanan  for  the  presidency. 

taxes  on  all  persons  and  property  in  its  domain.  By  a  writ  of  error  taken  out  by 
James  \V.  McCulloch,  cashier  of  the  bank,  the  case  was  taken  to  the  Supreme 
Court  of  the  United  States,  which  reversed  the  decision  of  the  State  courts,  and 
ordered  judgment  therein  to  be  entered  for  the  bank.  In  his  argument  Chief- 
Justice  Marshall,  who  delivered  that  opinion,  in  which  all  the  judiciary  concurred, 
said : 

"•  In  the  case  now  to  be  determined,  the  defendant,  a  sovereign  State,  denies 
the  obligation  of  a  law  enacted  by  the  Legislature  of  the  Union,  and  the  plaintiff, 
on  his  part,  contests  the  validity  of  an  act  which  has  been  passed  by  the  Legislat- 
ure of  that  State.  The  Constitution  of  our  country,  in  its  most  interesting  and 
vital  part,  is  to  be  considered;  the  conflicting  powers  of  the  Government  of  the 
Union  and  of  its  members,  as  marked  by  that  Constitution,  are  to  be  discussed, 
and  an  opinion  given  which  may  essentially  influence  the  great  operations  of  the 
Government.  No  tribunal  can  approach  such  a  question  without  a  deep  sense  of 
its  importance,  and  of  the  awful  responsibility  involved  in  its  decision.  But  it 
must  be  decided  peacefully,  or  remain  a  source  of  hostile  legislation,  perhaps  of 
hostility  of  a  still  more  serious  nature;  and  if  it  is  to  be  so  decided,  by  this  tri- 
bunal alone  can  the  decision  be  made.  On  the  Supreme  Court  of  the  United 
States  has  the  Constitution  of  our  country  devolved  this  important  duty. 

"The  first  question  made  in  the  cause  is  —  Has  Congress  power  to  incorporate 
a  bank? 

"  It  has  been  truly  said  that  this  can  scarcely  be  considered  as  an  open  question, 
entirely  unprejudiced  by  the  former  proceedings  of  the  nation  respecting  it.  The 
principle  now  contested  was  introduced  at  a  very  early  period  of  our  history,  has 
been  recognized  by  many  successive  Legislatures,  and  has  been  acted  upon  by  the 
Judicial  Department,  in  cases  of  peculiar  delicacy,  as  a  law  of  undoubted 
obligation. 

"  The  power  now  contested  was  exercised  by  the  first  Congress  elected  under  the 
present  Constitution.  The  bill  for  incorporating  the  Bank  of  the  United  States 
did  not  steal  upon  an  unsuspecting  Legislature,  and  pass  unobserved.  Its 
principle  was  completely  understood,  and  was  opposed  with  equal  zeal  and  ability. 
After  being  resisted,  first  in  the  fair  and  open  field  of  debate,  and  afterwards  in 
the  executive  Cabinet,  with  as  much  persevering  talent  as  any  measure  has  ever 
experienced,  and  being  supported  by  arguments  which  convinced  minds  as  pure 
and  as  intelligent  as  this  country  can  boast,  it  became  a  law.  The  original  act 
was  permitted  to  expire  ;  but  a  short  experience  of  the  embarrassments  to  which 
the  refusal  to  revive  it  exposed  the  Government  convinced  those  who  were  most 
prejudiced  against  the  measure  of  its  necessity,  and  induced  the  passage  of  the 
present  law.  It  would  require  no  ordinary  share  of  intrepidity  to  assert  that  a 
measure  adopted  under  these  circumstances  was  a  bold  and  plain  usurpation  to 
which  the  Constitution  gave  no  countenance. 

"  In  discussing  this  question,  the  counsel  for  the  State  of  Maryland  have  deemed 


80       OVERTHROW    OF    BANK    AND    INFLATION    OF    CURRENCY. 

The  preceding  resolutions  were  followed  at  subsequent  conven- 
tions by  others,  in  order  to  make  their  meaning  more  explicit  and 

it  of  some  importance,  in  the  construction  of  the  Constitution,  to  consider  that 
instrument  not  as  emanating  from  the  people,  but  as  the  act  of  ffie  Sovereign  and 
Independent  States.  The.  powers  of  the  General  Government,  it  has  been  said, 
are  delegated  by  the  States,  -who  alone  are  truly  sovereign  ;  and  must  be  exercised 
in  subordination  to  the  States,  who  alone  possess  supreme  dominion. 

"  It  would  be  difficult  to  sustain  this  proposition.  The  Convention  which  framed 
the  Constitution  was  indeed  elected  by  the  State  Legislatures.  But  the  instru- 
ment, when  it  came  from  their  hands,  was  a  mere  proposal,  without  obligation,  or 
pretensions  to  it.  It  was  reported  to  the  then  existing  Congress  of  the  United 
States,  with  a  request  that  it  might  '  be  submitted  to  a  Convention  of  delegates, 
chosen  in  each  State  by  the  people  thereof,  under  the  recommendation  of  its 
Legislatures,  for  their  assent  and  ratification.'  This  mode  of  proceeding  was 
adopted  ;  and  by  the  Convention,  by  Congress,  and  by  the  State  Legislatures,  the 
instrument  was  submitted  to  the  people.  They  acted  upon  it  in  the  only  manner 
in  which  they  can  act  safely,  effectively,  and  wisely  on  such  a  subject  — by  assem- 
bling in  convention.  It  is  true  they  assembled  in  their  several  States  —  and 
where  else  could  they  have  assembled  ?  No  political  dreamer  was  ever  wild 
enough  to  think  of  breaking  down  the  lines  which  separate  the  States,  and  of 
compounding  the  American  people  into  one  common  mass.  Of  consequence, 
when  they  act,  they  act  in  their  States.  But  the  measures  they  adopt  do  not,  on 
that  account,  cease  to  be  the  measures  of  the  people  themselves,  or  become  the 
measures  of  the  State  Governments.  From  these  conventions  the  Constitution 
derives  its  whole  authority.  The  Government  proceeds  directly  from  the  people  ; 
is  ordained  and  established  in  the  name  of  the  people  ;  and  is  declared  to  be 
ordained  '  in  order  to  form  a  more  perfect  union,  establish  justice,  ensure 
domestic  tranquillity,  and  secure  the  blessings  of  liberty  to  themselves  and  their 
posterity.'  The  assent  of  the  States  in  their  sovereign  capacity  is  implied  in 
calling  a  Convention,  and  thus  submitting  that  instrument  to  the  people.  But 
the  people  were  at  perfect  liberty  to  accept  or  reject  it;  and  their  act  was  final. 
It  required  not  the  affirmance,  and  could  not  be  negatived  by  the  State  Govern- 
ments. The  Constitution,  when  thus  adopted,  was  of  complete  obligation,  and 
bound  the  State  Sovereignties.'1'' 

The  judgment  of  the  Court  was  as  follows  : 

This  cause  came  on  to  be  heard  on  the  transcript  of  the  record  of  the  Court  of 
Appeals  of  the  State  of  Maryland,  and  was  argued  by  counsel.  On  consideration 
whereof,  it  is  the  opinion  of  this  Court  that  the  act  of  the  Legislature  of  Mary- 
land is  contrary  to  the  Constitution  of  the  United  States,  and  void  ;  and,  there- 
fore, that  the  said  Court  of  Appeals  of  the  State  of  Maryland  erred  in  affirming 
the  judgment  of  the  Baltimore  County  Court,  in  which  judgment  was  rendered 
against  James  W.  M'Culloch;  but  that  the  said  Court  of  Appeals  of  Maryland 
ought  to  have  reversed  the  said  judgment  of  the  said  Baltimore  County  Court, 
and  ought  to  have  given  judgment  for  the  said  appellant,  M'Culloch.  It  is 


OVERTHROW    OF    BANK    AND    INFLATION    OF    CURREN.CY.       8 1 

plain.  The  climax  was  reached  in  1852,  when  Franklin  Pierce  was 
nominated  for  the  presidency,  by  one  which  declared  that : 

The  Democratic  party  will  faithfully  abide  by  and  uphold  the  principles  laid 
down  in  the  Kentucky  and  Virginia  resolutions  of  1798  and  1799,  and  in  the 
report  of  Mr.  Madison  to  the  Virginia  Legislature  in.  1799,  that  it  adopts  those 
principles  as  constituting  one  of  the  main  foundations  of  its  political  creed,  and  is 
resolved  to  carry  them  out  in  their  obvious  meaning  and  import. 

The  Virginia  and  Kentucky  resolutions,  drawn  by  Mr.  Jefferson, 
among  other  things,  recited  that : 

The  several  States  who  formed  the  Constitution,  being  sovereign  and  inde- 
pendent, have  an  unquestionable  right  to  judge  of  the  infraction;  and  that  a 
nullification  by  these  sovereignties  of  all  unauthorized  acts  done  under  color  of 
that  instrument  is  the  rightful  remedy. 

therefore  adjudged  and  ordered  that  the  said  judgment  of  the  said  Court  of 
Appeals  of  the  State  of  Maryland,  in  this  case,  be,  and  the  same  hereby  is, 
reversed  and  annulled.  And  this  Court,  proceeding  to  render  such  judgment  as 
the  said  Court  of  Appeals  should  have  rendered,  it  is  hereby  adjudged  and 
ordered  that  the  judgment  of  the  Baltimore  County  Court  be  reversed  and 
annulled,  and  that  judgment  be  entered  in  the  said  Baltimore  County  Court  for 
the  said  James  W.  M'Culloch. 

Power  is  sublime  when  without  lictors  or  bayonets  it  executes  its 
decrees.  That  displayed  by  the  Supreme  Court  of  the  United  States 
in  bidding  a  proud  State  to  humbly  register  its  commands  has  but 
one  example  in  history,  that  related  by  Montaigne  in  his  Essay,  "  Of 
the  Roman  Grandeur"  :  "Antiochus  possessed  all  Egypt  and  was 
about  conquering  Cyprus  and  other  appendages  of  the  Empire. 
Being  upon  the  progress  of  his  victories,  C.  Popilius,  almost  un- 
attended, came  to  him  from  the  Senate,  and  at  their  first  meeting 
refused  to  take  him  by  the  hand  till  he  had  first  read  the  letters  he 
brought  him.  The  king  having  read  them  told  him  he  would 
consider  of  them,  but  Popilius  made  a  circumference  about  him 
with  the  wand  he  had  in  his  hand,  saying,  '  Return  me  an  answer, 
that  I  may  carry  back  to  the  Senate,  before  thou  stirrest  out  of  this 
circle.'  Antiochus,  astonished  at  the  roughness  of  so  positive  a 
command,  after  a  little  pause  replied,  '  I  will  obey  the  Senate's  com- 
mand,' renouncing  so  great  a  monarchy,  and  such  a  torrent  of 
successful  fortune,  upon  three  scratches  of  the  pen." 


82       OVERTHROW    OF    BANK    AND    INFLATION    OF    CURRENCY. 

The  logical  sequence  was  the  secession  of  the  South  in  1860;  an 
act  perfectly  legal  and  proper  according  to  all  the  precedents  and 
doctrines  of  the  Democracy. 

The  situation  stated,  Mr.  Van  Buren,  in  his  message  to  Congress, 
September  4,  1837,  made  the  astounding  announcement  that  the 
people  had  long  called  for  a  separation  of  the  fiscal  operations  of 
the  Government  from  those  of  the  people,  demanding  the  creation 
of  an  "  Independent  Treasury,"  into  which,  for  the  use  of  the 
Government,  nothing  but  gold  and  silver  was  to  enter,  —  the  people 
as  a  class  lower  and  distinct  from  their  officials  being  left  to  take  care 
of  themselves.  The  suggestion  came  from  the  dilemma  in  which  the 
Government  found  itself.  The  National  Bank  was  destroyed.  Jack- 
son's substitute  for  it,  —  the  State  Banks,  —  which  he  declared  had  dis- 
charged the  duties  assigned  to  them  in  a  manner  far  more  satisfactory 
than  similar  ones  had  been  discharged  by  the  national  one,  —  had 
proved  themselves  to  be  utterly  incompetent  to  serve  as  the  fiscal 
agents  of  the  Government.  The  people  were  wholly  committed  to  the 
use  of  paper  money,  good  or  bad,  no  matter  which.  The  Government, 
cut  off  from  the  bank  which  had  supplied  all  its  wants,  had  to  draw 
metallic  money,  —  the  only  kind  that  could  go  into  the  "  Independent 
Treasury,"  —  directly  from  the  people.  So  far  as  it  alone  was  con- 
cerned the  change  by  it  from  a  paper  to  a  metallic  currency  did  not 
seem  to  work  great  inconvenience  ;  its  operations  being  then  on  a  scale 
so  small  that  a  few  million  dollars,  which  could  be  readily  provided, 
sufficed.  When  from  $100,000,  the  expenses  of  the  Government  in 
the  great  rebellion  rose  to  $2,500,000  daily,  the  return  by  it  to  a 
paper  currency,  from  the  impossibility  of  procuring  specie,  was 
inevitable ;  and  as  no  return  was  to  be  made  to  a  symbolic  currency, 
—  that  is  to  one  of  banks  over  which  it  could  constitutionally  exercise 
control,  one  of  its  own  notes  was  the  only  alternative.  The  neces- 
sary result  was  that  the  cost  of  the  war  from  the  depreciation  of  the 
Government  notes,  all  its  obligations  being  finally  made  payable  in 
gold,  was  more  than  doubled ;  the  war  itself  being  greatly  prolonged 
from  the  demoralization  necessarily  resulting  from  the  floods  of  paper 
money  which,  costing  nothing,  was  poured  out  almost  for  the  asking. 
The  precedent  established,  we  committed,  in  a  period  of  profound 
peace,  the  incredible  folly  of  increasing  an  issue  of  Government 
notes,  until  the  amount  is  now  much  greater  than  that  reached  at  any 
time  during  the  war ;  some  500,000,000  having  been  issued  since 


OVERTHROW    OF    BANK    AND    INFLATION    OF    CURRENCY.       83 

the  Government,  in  1878,  undertook  the  resumption  of  specie  pay- 
ments. A  Government  may  well  issue  notes,  not  legal  tender,  in 
anticipation  of  the  revenues  and  payable  in  them,  the  amount  not  to 
exceed  the  demand  for  such  purpose,  such  currency  being  symbolic, 
the  incoming  dues  being  its  constituent.  Such  notes,  like  "Ex- 
chequer Bills,"  usually  bearing  a  low  rate  of  interest,  have  not 
(infrequently  been  resorted  to  by  our  own  Government,  and  are 
very  proper  expedients,  as  a  corresponding  amount  of  specie,  or  the 
money  of  banks,  are  discharged  from  its  operations.  It  is  probable 
that  an  issue  of,  say,  $50,000,000,  the  incoming  revenues  equalling 
$1,500,000  daily,  would,  to  those  indebted  to  the  Government,  have 
a  value  equal,  or  nearly  equal,  to  that  of  coin.  Such  notes  are  not 
money  in  any  sense,  as  they  are  not  in  terms,  or  in  fact,  payable  in 
the  universal  equivalent,  the  necessary  attribute  of  all  kinds  of  paper 
money  properly  issued.  Notes  issued  in  the  anticipation  of  the 
revenues  have  no  tendency  to  inflate  the  currency,  as  they  have  a 
specific  function,  do  not  enter  into  general  circulation,  and  are 
retired  by  their  use.  No  greater  wrong  can  be  committed  by  a 
Government  than  an  issue  by  it  of  its  notes,  forms  of  debt  to  serve 
as  money.  The  temptation  is  always  great  as  the  notes  are 
welcomed  by  all  classes,  every  one  seeming  to  be  enriched  in  ratio 
to  their  amount,  no  distrust  at  the  outset  being  felt,  as  the  whole 
means  of  the  people  is  assumed  to  be  pledged  therefor.  As  their 
issue  sets  everything  in  motion,  their  retirement  involves  a  contrac- 
tion of  all  the  operations  of  society  in  ratio  to  the  amount  of  their 
issue.  When  issued  in  vast  amounts  relative  to  the  means  of  a 
people  the  penalty  exacted  for  their  retirement  is  often  too  great  to 
be  paid,  and  they  are  usually  repudiated,  or  retired  only  with  a  very 
meagre  provision  for  their  discharge. 

In  1840  the  "Independent  Treasury"  was  established,  the  act 
being  repealed  the  following  year,  the  "Whigs"  having  achieved  a 
momentary  triumph.  It  was  finally  established  in  1846  under  the 
administration  of  Mr.  Polk.  At  the  time  the  abandonment  by  the 
Government  of  the  money  of  banks  —  of  commerce,  for  coin,  did  not 
work  great  inconvenience.  The  danger  was  to  come  when,  from  its 
enormously  increased  expenditures,  metallic  money  would  not  suffice 
for  its  wants,  the  alternative  being  an  issue  of  its  own  notes  to  reserve 
as  money,  precisely  that  adopted  in  the  War  of  the  Rebellion. 


84  DEBASEMENT    OF    THE    SILVER    CURRENCY. 

CHANGE    OF    STANDARDS.       ACTS    OF    1834    AND    1837. 

By  the  act  of  June  28,  1834,  the  weight  of  the  gold  eagle,  no 
provision  having  been  yet  made  for  the  coinage  of  the  gold  dollar, 
was  changed  from  270  to  258  grains,  its  fineness  from  9162/3  to 
899.225.  By  the  Act  of  January  18,  1837,  the  fineness  was  changed 
to  900.  The  value  of  the  gold  dollar  authorized  by  the  Act  of 
March  3,  1849,  corresponded  to  that  of  the  eagle.  By  the  reduc- 
tion in  the  value  of  the  gold  coins,  no  change  being  made  in  those 
of  silver,  the  coin  ratio  between  the  two  metals  was  changed  from 
15  to  1 6  to  i .  The  purpose  of  the  acts  was  the  substitution  of  gold 
as  the  standard  money  of  the  country  in  the  place  of  silver  which 
had  previously  been  the  standard  in  use  serving  as  the  reserves  of 
banks.  The  change  was  called  for  by  the  increased  transactions  of 
the  country,  gold,  from  its  higher  relative  value,  having  become  the 
more  convenient  money.  By  the  change  gold  was  undervalued  about 
3  per  cent.  The  substitution  of  gold  for  silver  as  the  money  of  the 
country  was  one  of  the  most  important  measures  of  General  Jack- 
son's administration,  and  received  his  earnest  support  as  well  as  that 
of  the  public,  not  a  voice  being  raised  in  opposition.  It  had  the 
approval  which  every  improved  method  or  process  in  affairs  is 
certain  to  receive. 

DEBASEMENT    OF    THE    SILVER    CURRENCY.       ACT    OF    1853. 

By  the  ratio  established  in  1837,  the  bullion  value  of  silver  coins 
for  a  series  of  years  exceeded  their  coin  value,  the  excess  at  times 
equalling  4^  per  cent.  In  consequence  silver  coins  of  ail  denomi- 
nations were  taken  for  export  to  such  an  extent  as  to  be  a  source  of 
very  great  inconvenience.  For  the  purpose  of  remedying  the  evil 
Mr.  Corwin,  Secretary  of  the  Treasury,  in  his  annual  report  for  1852, 
called  the  attention  of  Congress  to  the  matter.  He  said  : 

So  soon  as  the  state  of  our  foreign  commerce,  as  is  now  the  case,  requires  the 
exportation  of  specie,  it  is  obvious  that  our  silver  coin  must  be  exported  so  long 
as  it  can  be  had.  There  seems  to  be  but  one  immediate  and  direct  remedy  for 
this  evil,  and  that  is  the  one  that  has  already  been  adopted  in  Great  Britain,  of 
changing  the  relative  value  of  gold  and  silver  coin  by  reducing  the  intrinsic  value 
of  the  latter.  This  could  be  advantageously  done  by  making  the  silver  dollar 
weigh  384,  in  the  place  of  412}^  standard  grains,  and  the  smaller  coins  in  propor- 
tion. If  such  a  scale  of  weights  were  adopted,  the  relation  of  silver  in  such 
pieces  to  gold  would  be  as  14.884  to  I.  This  plan,  if  adopted  by  Congress,  will, 


DEBASEMENT    OF    THE    SILVER    CURRENCY.  85 

of  course,  involve  the  necessity  of  making  silver  coin  a  legal  tender  only  for  debts 
of  small  amounts,  not,  say,  exceeding  ten  dollars,  which  is  about  the  same  limit, 
forty  shillings,  which  has  been  established  in  England. 

Pursuant  to  this  suggestion,  Congress,  by  an  Act  of  February  21, 
1853,  reduced  the  weight  of  silver  in  the  half-dollar  from  206.25  to 
192  standard  grains,  and  in  the  smaller  coins  in  like  ratio,  such  coins 
to  be  legal  tender  in  the  payment  of  debts  not  exceeding  five 
dollars.  No  reduction  was  made  at  the  time  in  the  weight  of  the 
silver  dollar,  for  the  reason,  to  use  the  words  of  Mr.  Hunter  of  Vir- 
ginia, Chairman  of  the  Committee  on  Finance  of  the  Senate,  "that 
the  great  measure  of  adjusting  the  legal  tender  ratio  between  gold 
and  silver  as  legal  tender  in  unlimited  amounts  cannot  be  safely 
attempted  until  some  permanent  relation  in  the  value  of  the  two 
metals  shall  be  established,"  the  discovery  of  gold  in  California  a 
few  years  previous  having  disturbed  largely  the  commercial  ratio 
which  had  prevailed  between  the  two  metals.  The  excess  in  1852 
in  value  of  a  dollar  in  silver  over  one  in  gold  was  2.57  per  cent.; 
in  1853,  4.26  per  cent.  Congress  could  well  postpone  action  upon 
the  matter  of  the  silver  dollar  as  there  was  none  in  circulation,  nor 
had  any  been  in  circulation  from  the  foundation  of  the  Government. 
The  total  coinage  up  to  1806,  when  it  was  stopped  by  order  of  the 
President  as  involving  a  needless  outlay  of  the  public  money,  all 
such  coins  being  exported  as  fast  as  they  came  from  the  mint, 
equalled  £1.439,517.  In  reporting  the  bill  to  the  House,  Mr.  Dun- 
ham, of  Indiana,  a  Western  man,  Chairman  of  the  Committee  of 
Ways  and  Means,  among  other  things,  said  : 

An  objection  to  this  proposed  change  (*'.<?.,  the  reduction  of  the  weight  of  the 
minor  coins)  is  that  it  gives  us  a  standard  of  currency  of  gold  only.  What  advan- 
tage is  to  be  obtained  by  a  standard  of  the  two  metals,  which  is  not  as  well,  if  not 
much  better,  attained  by  a  single  standard,  I  am  unable  to  perceive.  .  .  . 
Wherever  the  experiment  of  a  standard  of  a  single  metal  has  been  tried,  it  has 
proved  eminently  successful.  Indeed,  it  is  utterly  impossible  that  you  should  long 
at  a  time  maintain  a  double  standard.  .  .  .  Gentlemen  talk  about  a  double 
standard  of  gold  and  silver  as  a  thing  that  exists,  and  that  we  propose  to  change. 
That  has  been,  and  now  is,  gold.  We  propose  to  let  it  remain  so,  and  to  adapt 
silver  to  it,  to  regulate  it  by  it. 

Up  to  and  including  1853  the  total  coinage  of  silver  dollars 
equalled  $2,506,890;  of  subsiduary  silver,  $66,716,481;  of  gold, 


86  DEBASEMENT    OF    THE    CURRENCY. 

$276,169,529.  By  the  Act  of  1853  the  country  was  put  wholly  upon 
a  gold  basis,  the  coinage  of  silver  dollars  having  been  practically 
abandoned,  the  minor  coins  being  too  debased  in  value  for  export. 

CONSEQUENCES  RESULTING  FROM  THE  ABANDONMENT  BY  THE 
GOVERNMENT  OF  OVERSIGHT  OF  THE  CURRENCY. 

In  the  long  period  from  1829  to  1860  there  were  but  two  apparent 
breaks  in  the  tule  of  the  Democracy,  the  first  made  by  the  election 
of  General  Harrison  in  1841,  to  the  presidency,  which  was  without 
result,  as  his  death  almost  immediately  followed  his  inauguration. 
Mr.  Tyler,  of  Virginia,  a  prominent  advocate  of  States'  rights,  and 
of  a  strict  constructionist,  became  president.  The  Democracy  was 
defeated  in  1848  in  the  contest  for  the  presidency,  but  held  both 
branches  of  the  national  Legislature,  so  that  its  control  may  be  said 
to  have  been  unbroken  through  a  period  of  thirty  years.  The  result 
of  its  rule,  during  this  long  period,  was  drawn  in  striking  colors  by 
Mr.  Buchanan  in  his  annual  message  for  1857  : 

We  have  possessed  all  the  elements  of  material  wealth  in  rich  abundance,  and 
yet,  notwithstanding  all  these  advantages,  our  country,  in  its  monetary  interests, 
is  at  the  present  moment  in  a  deplorable  condition.  In  the  midst  of  unsurpassed 
plenty  in  all  the  productions  of  agriculture,  and  in  all  the  elements  of  national 
wealth,  we  find  our  manufactures  suspended,  our  public  works  retarded,  our 
private  enterprises  of  different  kinds  abandoned,  and  thousands  of  useful  laborers 
thrown  out  of  employment  and  reduced  to  want.  The  revenue  of  the  Govern- 
ment, which  is  chiefly  derived  from  duties  on  imports  from  abroad,  has  been 
greatly  reduced,  whilst  the  appropriations  made  by  Congress  at  its  last  session 
for  the  current  fiscal  year  are  very  large  in  amount. 

Under  these  circumstances  a  loan  may  be  required  before  the  close  of  your 
present  session;  but  this,  although  deeply  to  be  regretted,  would  prove  to  be 
only  a  slight  misfortune  ivhen  compared  luith  the  suffering  and  distress  prevailing 
among  the  people.  With  this  the  Government  cannot  fail  deeply  to  sympathize, 
though  it  may  be  without  the  power  to  extend  relief. 

It  is  our  duty  to  inquire  what  has  produced  such  unfortunate  results,  and 
whether  their  recurrence  can  be  prevented.  In  all  former  revulsions  the  blame 
might  have  been  fairly  attributed  to  a  variety  of  cooperating  causes;  but  not  so 
upon  the  present  occasion.  It  is  apparent  that  our  existing  misfortunes  have 
proceeded  solely  from  our  extravagant  and  vicious  system  of  paper  currency  and 
bank  credits,  exciting  the  people  to  wild  speculations  and  gambling  in  stocks. 
These  revulsions  must  continue  to  recur  at  successive  intervals  so  long  as  the 
amount  of  the  paper  currency  and  bank  loans  and  discounts  of  the  country  shall 
be  left  to  the  discretion  of  fourteen  hundred  irresponsible  banking  institutions, 
which,  from  the  very  law  of  their  nature,  will  consult  the  interest  of  their  stock- 
holders rather  than  the  public  welfare. 


DEBASEMENT    OF    THE    CURRENCY.  87 

The  framers  of  the  Constitution,  when  they  gave  to  Congress  the  power  to 
coin  money  and  regulate  the  value  thereof,  and  prohibited  the  States  from  coining 
money,  emitting  bills  of  credit,  or  making  anything  but  gold  and  silver  coin  a 
tender  in  payment  of  debts,  supposed  they  had  protected  the  people  against  the 
evils  of  an  excessive  and  irredeemable  paper  currency.  They  are  not  responsible 
for  the  existing  anomaly  that  a  government  endowed  with  the  sovereign  attribute 
of  coining  money  and  regulating  the  value  thereof  should  have  no  power  to  pre- 
vent others  from  driving  this  coin  out  of  the  country  and  filling  up  the  channels  of 
circulation  with  paper  which  does  not  represent  gold  and  silver 

It  is  one  of  the  highest  and  most  responsible  duties  of  government  to  insure  to 
the  people  a  sound  circulating  medium,  the  amount  of  which  ought  to  be  adapted 
with  the  utmost  possible  wisdom  and  skill  to  the  wants  of  internal  trade  and  for- 
eign exchanges.  If  this  be  either  greatly  above  or  greatly  below  the  proper 
standard,  the  marketable  value  of  every  man's  property  is  increased  or  diminished 
in  the  same  proportion,  and  injustice  to  individuals  as  well  as  incalculable  evils 
to  the  community  are  the  consequence. 

Unfortunately,  under  the  construction  of  the  Federal  Constitution,  which  has 
now  prevailed  too  long  to  be  changed,  this  important  and  delicate  duty  has  been 
dissevered  from  the  coining  power ,  and  virtually  transferred  to  more  than  fourteen 
hundred  State  banks,  acting  independently  of  each  other,  and  regulating  their 
paper  issues  almost  exclusively  by  a  regard  to  the  present  interest  of  their  stock- 
holders. Exercising  the  sovereigii  power  of  providing  a  paper  currency  instead  of 
coin  for  the  country,  the  first  duty  which  these  banks  owe  to  the  public  is  to  keep 
in  their  vaults  a  sufficient  amount  of  gold  and  silver  to  insure  the  convertibility  of 
their  notes  into  coin  at  all  times  and  under  all  circumstances.  ...  In  a 
recent  report  made  by  the  Treasury  Department,  on  the  condition  of  the  banks 
throughout  the  different  States,  according  to  returns  dated  nearest  to  January, 
1857,  the  aggregate  amount  of  actual  specie  in  their  vaults  is  $58,349,838,  of 
their  circulation  $214,778,822,  and  of  their  deposits  $230,351,352.  Thus  it 
appears  that  these  banks,  in  the  aggregate,  have  considerably  less  than  one 
dollar  in  seven  of  gold  and  silver,  compared  with  their  circulation  and  deposits. 
It  was  palpable,  therefore,  that  the  very  first  pressure  must  drive  them  to  suspen- 
sion, and  deprive  the  people  of  a  convertible  currency,  with  all  its  disastrous 
consequences. 

From  this  statement  it  is  easy  to  account  for  our  financial  history  for  the  last 
forty  years.  It  has  been  a  history  of  extravagant  expansions  in  the  business  of 
the  country,  followed  by  ruinous  contractions.  At  successive  intervals  the  best 
and  most  enterprising  men  have  been  tempted  to  their  ruin  by  excessive  bank 
loans  of  mere  paper  credit,  exciting  them  to  extravagant  importations  of  foreign 
goods,  wild  speculations,  and  ruinous  and  demoralizing  stock  gambling.  When 
the  crisis  arrives,  as  arrive  it  must,  the  banks  can  extend  no  relief  to  the  people. 
In  a  vain  struggle  to  redeem  their  liabilities  in  specie,  they  are  compelled  to  con- 
tract their  loans  and  their  issues;  and,  at  last,  in  the  hour  of  distress,  when  their 
assistance  is  most  needed,  they  and  their  debtors  together  sink  into  insolvency. 

It  is  this  paper  system  of  extravagant  expansion,  raising  the  nominal  price  of 
every  article  far  beyond  its  real  value,  when  compared  with  the  cost  of  similar 
articles  in  countries  whose  circulation  is  wisely  regulated,  which  has  prevented 


88  DEBASEMENT  OF  THE  CURRENCY. 

us  from  competing  in  our  own  markets  with  foreign  manufacturers,  has  produced 
extravagant  importations,  and  has  counteracted  the  effect  of  the  large  incidental 
protection  afforded  to  our  domestic  manufactures  by  the  present  revenue  tariff. 

In  the  meantime,  it  is  the  duty  of  the  Government,  by  all  proper  means  within 
its  power,  to  aid  in  alleviating  the  sufferings  of  the  people  occasioned  by  the  sus- 
pension of  the  banks,  and  to  provide  against  a  recurrence  of  the  same  calamity. 
Unfortunately,  in  either  aspect  of  the  case,  it  can  do  but  little.  .  .  .  Long 
experience  has  deeply  convinced  me  that  a  strict  construction  of  the  powers 
granted  Congress  is  the  only  true,  as  well  as  only  safe,  theory  of  the  Constitution. 

Here  is  a  graphic  picture  of  the  condition  of  the  country  from  the 
advent,  with  Jackson,  of  the  Democracy,  to  its  overthrow  in  1860. 
It  was  the  picture  of  a  people  wholly  incapable  of  applying  the  most 
obvious  remedy  to  the  greatest  of  evils  —  a  disordered  currency.  "  In 
the  midst  of  unsurpassed  plenty  in  all  the  productions  of  agriculture 
and  all  the  elements  of  national  wealth,  we  find,"  said  Mr.  Buchan- 
nan,  "  our  manufactures  suspended,  our  public  works  retarded,  our 
private  enterprises  abandoned,  thousands  of  useful  laborers  thrown 
out  of  employment  and  reduced  to  want ;  the  revenues  of  the  Gov- 
ernment greatly  reduced,  to  be  made  good  only  by  a  loan  before  the 
close  of  the  present  session ;  such  loan  being  only  a  slight  misfortune 
compared  with  the  suffering  and  distress  prevailing  among  the 
people.  With  this  distress  the  Government  cannot  fail  to  sympa- 
thize, though  it  may  not  be  in  its  power  to  afford  relief." 

Why,  in  the  midst  of  boundless  elements  of  wealth  and  in  a 
period  of  profound  peace-,  was  it  possible  that  such  a  terrible  picture 
could  be  drawn  ?  For  the  reason  that  "  the  currency  was  left  to  the 
discretion  of  1,400  banking  institutions.  .  .  .  The  framers  of 
the  Constitutions  are  not  responsible  for  the  anomaly  that  a  Govern- 
ment, endowed  with  sovereign  attributes  for  coining  money  and 
regulating  the  value  thereof,  should  have  no  power  to  prevent  others 
from  driving  this  money  out  of  the  channels  of  circulation  with  paper 
that  does  not  represent  gold  and  silver."  Of  course  not.  They 
addressed  themselves,  like  men  of  sense,  not  as  the  servile  tools  of 
an  exacting  and  relentless  slave- holding  oligarchy,  to  a  practical 
matter,  to  be  determined  upon  its  own  merits,  not  upon  abstract 
considerations  of  government.  From  their  experience  of  the  past, 
one  of  the  first  measures  of  the  "  framers  of  the  Constitution,"  who 
dominated  wholly  the  first  Congress,  was  the  provision  of  a  system 
under  which,  no  matter  the  amount,  paper  money,  whether  issued 
by  State  or  National  Banks,  could  not  only  have  no  tendency  to 


DEBASEMEMT  OF  THE  CURRENCY.  89 

drive  silver  and  gold  out  of  the  country,  but,  on  the  contrary,  had  a 
direct  tendency  to  attract  them  from  other  countries  to  supply  the 
reserves  of  the  issuers  of  paper  money  to  be  increased  in  ratio  to 
the  increased  transactions  and  prosperity  of  our  people.  Had  a 
picture  been  drawn  of  the  condition  of  our  country  for  twenty  years 
following  the  foundation  of  our  Government  it  would  have  been 
one  of  unsurpassed  prosperity  and  contentment,  the  people  turning 
to  the  best  account  their  boundless  resources ;  the  chief  instruments 
therefor  being  a  currency  which,  under  the  supervision  of  the  Gov- 
ernment, not  only  discharged  coin  from  the  exchanges,  but  which 
was  always  at  the  value  of  coin.  For  the  brief  period  between  the 
two  banks  the  picture  drawn  by  Mr.  Buchanan  would  have  been 
true  to  the  letter,  the  currency  being  wholly  committed  to  a  vast 
number  of  banks  over  which  the  Government  had  no  control.  Of 
the  condition  of  the  country  following  the  creation  of  the  second 
bank,  after  the  situation  was  restored,  the  picture,  drawn  by  Gallatin, 
and  by  Committees  of  both  Houses  of  Congress,  one  of  universal 
contentment  and  prosperity,  has  been  given.  The  moment  that  the 
National  Government  discharged  itself  of  one  of  the  most  important 
duties  of  sovereignty  the  supervision  of  the  currency  all  was 
changed.  "Congress  was  clothed,"  said  Mr.  Buchanan,  "with  the 
attribute  of  coining  money  and  regulating  the  value  thereof;  "  but  it 
was  a  power  which  could  be  defeated  by  issuers  of  currency  respon- 
sible only  to  themselves.  An  attribute  that  cannot  be  enforced  is 
not  sovereign.  In  the  matter  of  the  currency  the  banks  alone  were 
clothed  with  sovereign  power. 

Under  the  rule  of  Mr.  Buchanan,  not  only  was  Government  dis- 
charged of  all  power  over  the  currency,  by  which  the  purpose  of  the 
attribute  of  "coining  money  and  regulating  the  value  thereof" 
was  wholly  defeated,  but  it  was  discharged  of  every  attribute  neces- 
sary to  its  own  existence.  From  the  nomination  of  Jackson  for  a 
second  term,  by  the  adoption,  always  repeated,  by  the  nominating 
conventions  of  the  "  Two-thirds  rule,"  no  Democrat  could  hope  to 
reach  the  presidency  unless  he  personally  pledged  himself  to  oppose 
no  obstacle  to  the  withdrawal  of  any  State  from  the  "  Confederacy," 
the  term  applied  by  the  States'  rights  party  to  the  National  Govern- 
ment. General  Jackson  declared  that  the  meaning  of  the  Constitu- 
tion was  a  matter  for  every  one  one  living  under  it.  By  the  National 
Conventions  which  followed  hi?  doctrines  were  definitely  formulated. 


£0  DEBASEMENT    OF    THE    SILVER    CURRENCY. 

The  result  was  that,  at  the  close  of  Mr.  Buchanan's  administration, 
the  National  Government  existed  by  sufferance  alone.  To  attacks 
from  within  it  could  oppose  no  resistance  whatever.  All  life,  or  pur- 
pose, or  power  of  self-defence  was  at  an  end.  When  near  its  close 
the  Southern  States  were  seceding  in  a  body,  he  declared  that,  while 
they  had  no  right  to  go,  no  force  could  be  opposed  to  their  going. 
It  will  be  always  so  with  a  party  that  draws  its  inspiration  from  the 
lowest  elements  of  which  it  is  composed.  The  Democracy,  under 
General  Jackson,  came  into  possession  of  a  vast  and  goodly  estate, 
which  was  wholly  wasted  at  the  end  of  thirty  years.  But  for  the  new 
life  that  came  with  the  great  uprising  of  the  North,  our  boasted 
Republic  would  have  come  to  an  end.  From  the  experience  of  the 
past  no  wonder  the  terror  that  seized  the  nation  when  it  seemed 
possible  that  at  the  recent  election,  the  Democracy,  in  which  for 
the  moment  were  combined  all  the  revolutionary  elements  of  the 
country,  might  again  carry  the  day. 

If  it  be  objected  that  politics  have  no  place  in  a  treatise  on 
money,  it  may  be  replied  that  the  construction  of  the  Constitution 
under  General  Jackson  turned  wholly  upon  the  question  whether 
the  Government  of  the  United  States  was  competent  to  exercise 
supervision  over  the  money  of  the  country  in  ordinal*)'  use.  He 
denied  that  it  possessed  such  power  in  the  face  of  its  exercise  for 
forty  years  by  the  establishment  of  two  banks,  sustained  by  the 
authority  of  Jefferson  and  Madison,  and  of  the  Supreme  Court  of 
the  United  States,  the  tribunal  created  by  the  Constitution  to  deter- 
mine the  validity  of  all  matters  in  law  and  equity  arising  under  it. 
It  was  the  turning  point  in  the  history  of  the  country,  leading 
directly  to  the  secession  of  the  Southern  States  and  the  war  of  the 
Rebellion.  For  nearly  seventy  years  the  currency  has  been  the 
great  political  question  of  the  country,  and  never  more  so  than  at 
the  present  moment.  There  have  since  the  war  of  Independence 
been  but  two  great  subjects  of  history  in  the  United  States  —  the 
Currency  and  the  war  of  the  Rebellion.  The  former  is  by  far  the 
most  important,  as  it  shows  how  the  war  arose,  the  events  of 
the  latter  being  of  little  consequence  except  in  their  bearing  upon 
the  restoration  of  the  surpremacy  of  the  National  Government  in 
its  relation  to  that  of  the  States.  To  regain  the  ground  occupied 
by  the  Fathers  we  must  learn  how  we  have  wandered  so  far,  and 


UNITED    STATES    NOTES.  91 

restore  the  system  they  established  by  showing  how  foully  it  was 
overthrown. 

UNITED    STATES    NOTES. 

No  sooner  was  it  seen  that  the  war  of  the  Rebellion  was  to  be  a 
life  and  death  struggle  between  the  two  sections  of  the  country  than 
the  chief  care  of  the  Government,  now  for  the  first  time  for  thirty 
years  wholly  in  the  hands  of  the  North,  was  provision  of  the  means  for 
its  prosecution.  For  this  purpose  Mr.  S.  P.  Chase,  Secretary  of  the 
Treasury,  on  the  gth  of  August,  1861,  met  in  conference  a  large 
number  of  citizens  of  New  York,  at  the  house  of  the  Assistant  Treas- 
urer, J.  J.  Cisco,  in  that  city.  Of  that  meeting  and  the  results  that 
followed,  Mr.  George  S.  Coe,  then  President  of  the  American  Ex- 
change Bank  in  New  York,  gave  the  following  account : 

After  the  disastrous  battle  of  Bull  Run,  and  when  Washington  was  closely 
beleaguered,  and  the  avenue  thence  to  New  York  through  Baltimore  was  inter- 
cepted by  the  enemy,  Mr.  Chase,  then  Secretary  of  the  Treasury,  came  to  this 
city  via  Annapolis,  and  immediately  invited  all  persons  in  this  community  who 
were  supposed  to  possess  or  control  capital  to  meet  him  on  the  evening  of  August 
9th,  at  the  house  of  John  J.  Cisco,  Esq.,  then  Assistant  Treasurer  of  the  United 
States  in  New  York.  This  invitation  drew  together  a  large  number  of  gentlemen 
of  various  occupations  and  circumstances.  During  the  discussion  which  ensued 
I  suggested  the  practicability  of  uniting  the  Banks  of  the  North  by  some  organ- 
ization that  would  combine  them  into  an  efficient  and  inseparable  body,  for  the 
purpose  of  advancing  the  capital  of  the  country  upon  government  bonds  in  large 
amounts  ;  and,  through  their  clearing-house  facilities  and  other  well-known  expe- 
dients, to  distribute  them  in  smaller  sums  among  the  people  in  a  manner  that 
would  secure  active  co-operation  among  the  members  in  this  special  work,  while 
in  all  other  respects  each  Bank  could  pursue  its  independent  business.  This  sug- 
gestion met  the  hearty  approbation  of  the  assembled  company,  and  arrested  the 
earnest  attention  of  the  Secretary.  At  his  request,  it  was  presented  to  the  con- 
sideration of  the  Banks,  at  a  meeting  called  for  that  purpose  at  the  American 
Exchange  Bank  on  the  following  day  ;  and  was  so  far  entertained  as  to  secure 
the  appointment  of  a  Committee  of  ten  bank  officers,  to  give  it  form  and  cohe- 
rence. The  Committee  convened  at  the  Bank  of  Commerce,  whose  officers  zeal- 
ously united  in  the  effort,  and  a  plan  was  reported  unanimously.  Their  report 
was  cordially  accepted  and  adopted  by  the  Banks  in  New  York  ;  those  in  Boston 
and  Philadelphia  being  represented  at  the  meeting,  and  as  zealously  and  cordially 
united  in  the  organization. 

It  was  at  once  unanimously  agreed  that  the  Associated  Banks  of  the  three 
cities  would  take  fifty  millions  of  7-3  notes  at  par,  with  the  privilege  of  an  addi- 
tional fifty  millions  in  sixty  days,  and  a  further  amount  of  fifty  millions  in  sixty 
days  more,  making  one  hundred  and  fifty  millions  in  all,  and  offer  them  for  sale 


£2  UNITED    STATES    NOTES. 

to  the  people  of  the  country  at  the  same  price,  without  charge.  In  this  great  un- 
dertaking, the  Banks  of  New  York  assumed  more  than  their  relative  proportion. 
To  insure  full  co-operation  and  success,  the  expedient  of  issuing  clearing-house 
certificates,  and  of  appropriating  and  averaging  all  the  coin  in.  the  various  Banks 
as  a  common  fund,  which  had  been  invented  but  the  year  before,  was  applied  to 
this  special  object  with  good  effect.  .  . 

The  capitals  of  the  Banks  thus  associated  made  an  aggregate  of  one  hundred 
and  twenty  millions,  —  an  amount  greater  than  the  Bank  of  England  and  the 
Bank  of  France  combined,  each  of  which  institutions  had  been  found  sufficient 
for  the  gigantic  struggles  of  those  great  nations,  from  time  to  time,  in  conflict 
with  all  Europe.  .  .  . 

The  following  figures  also  show  that  the  financial  condition  of  the  Banks  at 
the  time  was  one  of  great  strength : 

Liabilities.  Assets  in 

Deposits.  Circulation.  Coin. 

Banks  in  New  York  .$92,046,308  .  .  .$8,521,426  .  .  .$49*733:990 
"  Boston  .  .  18,235,061  .  .  .  6,366,466  .  .  .  6,665,929 
"  Philadelphia  .  15,335,838  .  .  .  2,076,857  .  .  .  6,765,120 

$125,617,207  $16,964,749 

125,617,207 

Total $142,581,956,   against   $63,165,039 

coin  on  hand,  equal  to  45  per  cent,  of  all  liabilities.  Surely,  such  conditions  as 
these,  with  judicious  administration,  were  adequate  to  the  work  which  the 
country  required.  A  great  merit  of  this  bank  combination  at  that  critical 
moment,  when  the  life  of  the  nation  hung  in  the  balance,  consisted  in  the  fact 
that  it  fully  committed  the  hitherto  hesitating  moneyed  capital  of  the  North  and 
East  to  the  support  of  the  government.  The  bank  officers  and  directors  who 
thus  counselled  and  consented  were  deeply  sensible  of  the  momentous  responsi- 
bility which  they  assumed  ;  but  all  doubt  and  hesitation  were  instantly  removed, 
and  perfect  unanimity  was  secured  by  the  question,  "  IVhat  if  we  do  not  unite  ?  " 
And  acting  as  guardians  of  a  great  trust  exposed  to  imminent  danger,  they  fear- 
lessly elected  the  alternative  best  calculated  to  protect  it. 

The  problem  to  be  practically  resolved  by  the  Banks  was  this  :  How  can  the 
available  capital  be  best  drawn  from  the  people,  and  devoted  to  the  support  of 
government,  with  the  least  disturbance  to  the  country?  and  by  what  means  can 
arms,  clothing,  and  subsistence  for  the  army  be  best  secured  in  exchange  for  gov- 
ernment credit?  These  were  simple  questions  of  domestic  exchange,  and  most 
naturally  suggested  the  use  of  the  ordinary  methods  of  bank-checks,  deposits, 
and  transfers,  that  the  experience  of  all  civilized  nations  had  found  most  efficient 
for  the  purpose  ;  and  that  this  should  be  accomplished  by  the  Associated  Banks, 
in  a  manner  best  calculated  to  prolong  their  useful  agency  and  to  preserve  the 
specie  standard,  it  was  indispensable  that  their  coin  reserves  remain  with  the  least 
possible  change.  Accordingly,  it  was  at  once  proposed  to  the  Secretary  that  he 
should  suspend  the  operations  of  the  Sub-Treasury  Act  in  respect  to  these  trans- 
actions, and,  following  the  course  of  commercial  business,  that  he  should  draw 
checks  upon  some  one  Bank  in  each  city  representing  the  Association,  in  small 


UNITED    STATES    NOTES.  93 

sums  as  required,  in  disbursing  the  money  thus  advanced.  By  this  means  his 
checks  would  serve  the  purpose  of  a  circulating  medium,  continually  redeemed, 
and  the  exchanges  of  capital  and  industry  would  be  best  promoted.  This  was 
the  more  important  in  a  period  of  public  agitation,  when  the  disbursement  of 
these  large  sums  exclusively  in  coin  rendered  the  reserves  of  the  Banks  all  the 
more  liable  to  be  wasted  by  hoarding.  To  the  astonishment  of  the  Committee, 
Mr.  Chase  refused  ;  notwithstanding  the  Act  of  Congress  of  August  5th,  which  it 
seemed  to  us  was  passed  for  the  very  object  then  presented.  This  issue  was  dis- 
cussed from  time  to  time  with  much  zeal  ;  but  always  with  the  same  result.  It 
was  seen  by  the  most  experienced  bank  officers  to  be  vital  to  the  success  of  their 
undertaking.  To  draw  from  the  Banks  in  coin  the  large  sums  involved  in  these 
loans,  and  to  transfer  them  to  the  Treasury,  thence  to  be  widely  scattered  over 
the  country  at  a  moment  when  wrr  had  excited  fear  and  distrust,  was  to  be  pulling 
out  continually  the  foundations  upon  which  the  whole  structure  rested.  And  inas- 
much as  this  money  was  loaned  to  the  government,  and  was  in  no  sense  a  trust 
reposed  in  the  Banks,  there  appeared  to  them  no  reason  why  it  should  not  be 
drawn  by  checks  in  favor  of  government  contractors  and  creditors,  who  would 
require  to  exchange  them  for  other  values  in  commerce  and  trade,  through  the 
process  of  the  clearing-house.  And  this  consideration  was  greatly  strengthened 
by  the  fact,  that  these  advances  were  made,  and  the  money  publicly  disbursed,  a 
long  time  before  the  treasury  notes  were  ready  for  delivery  to  the  Banks  which 
had  paid  for  them.  In  the  light  which  has  since  been  shed  upon  the  Act  of  Con- 
gress referred  to,  it  is  evident  that  undue  weight  was  given  to  the  views  of  the 
Secretary,  and  that  the  Banks  would  have  conferred  an  incalculable  benefit  upon 
the  country,  had  they  adhered  inflexibly  to  their  own  opinions.  ...  It  soon 
became  manifest  that,  in  consenting  to  have  their  hands  tied  and  their  most 
efficient  powers  restricted,  while  engaged  in  these  great  operations,  and  in 
allowing  their  coin  reserves  to  be  wasted  by  pouring  them  out  upon  the  com- 
munity in  a  manner  so  unnecessary  and  exceptional,  the  Banks  deprived  them- 
selves and  the  government  of  the  ability  of  long  continuing,  as  they  otherwise 
could  have  done,  to  negotiate  the  National  loans  upon  a  specie  standard. 

This  first  great  error,  if  it  did  not  create  a  necessity  for  the  legal-tender 
notes,  certainly  precipitated  the  adoption  of  that  most  unhappy  expedient,  and 
thereby  committed  the  nation  at  an  earlier  day  to  the  most  expensive  of  all  meth- 
ods of  financiering. 

One  other  subject  of  discussion  between  the  Secretary  and  the  Associated 
Banks  at  the  same  time  arose,  which  led  in  the  same  direction.  Congress  by  its 
Act  of  i;th  July  had  authorized  loans  to  the  amount  of  two  hundred  and  fifty 
millions.  This  could  be  issued  either  in  bonds  running  twenty  years  at  not  over 
seven  per  cent,  interest — 7-3  notes  running  three  years,  or  fifty  millions  of  the 
amount  could,  at  the  discretion  of  the  Secretary,  be  made  in  currency  notes  pay- 
able on  demand  without  interest.  As  the  undertaking  of  the  Associated  Banks 
covered  one  hundred  and  fifty  millions  of  this  sum,  and  it  was  desired  that  they 
continue  the  work  thus  auspiciously  begun,  a  question  of  the  expediency  of  put- 
ting out  the  circulating  notes  was  immediately  raised  by  one  of  its  members.  A 
very  small  amount  had  been  emitted.  The  Treasury  was  empty  of  coin  to  redeem 
them,  and  could  only  be  replenished  by  the  proceeds  of  the  bank  loans.  //  was 


94  UNITED    STATES    NOTES. 

evident  to  the  bank  officers  that  they  could  not  sustain  coin  payments,  if  the  trans- 
fers from  their  vaults  to  that  of  the  Treasury  were  subject  to  be  intercepted  and 
absorbed  by  these  notes  of  government.  Nor  could  the  Banks  receive  them  upon 
deposit  from  the  public  as  money,  while  they  were  responding  to  the  government 
and  to  their  own  dealers  in  coin.  //  was  an  inflation  of  the  currency  in  the  form 
most  embarrassing  to  the  enterprise  they  had  commenced.  Accordingly,  the  Secre- 
tary was  urgently  solicited  to  refrain  from  exercising  the  discretionary  powers 
given  him  of  creating  the  Treasury  currency,  until  all  other  means  were  exhausted. 
In  response  to  a  resolution  to  that  effect,  the  Secretary  assured  the  bank  officers 
of  his  acquiescence  in  their  suggestion  ;  but  at  the  same  time  insisted  that  it  was 
improper  for  a  public  officer  to  openly  pledge  himself  not  to  exercise  a  power  con- 
ferred by  the  law.  With  this  understanding  the  Banks  began  their  work  ;  paying 
into  the  Treasury,  in  coin,  one  hundred  and  fifty  millions,  in  sums  at  the  rate  of 
about  five  millions,  at  intervals  of  six  days.  Even  with  all  these  unfavorable  cir- 
cumstances surrounding  them,  it  was  an  encouraging  fact,  observed  by  those  who 
were  anxiously  watching  the  practical  operation  of  this  great  and  novel  experi- 
ment, that,  while  the  circulating  notes  in  the  country  were  restricted,  the  dis- 
bursements of  the  government  for  the  war  were  so  rapid,  and  the  consequent 
internal  trade  movement  was  so  intense,  that  the  coin  paid  out  upon  each  instal- 
ment of  the  loan  came  back  to  the  Banks,  through  the  community,  in  about  one 
week  ;  the  natural  effect  of  this  general  commercial  activity  upon  the  circulating 
medium  being  simply  to  quicken  its  flow. 

After  taking  the  third  amount  of  fifty  millions  by  the  Associated  Banks,  those 
in  New  York,  who  had  at  that  time  paid  in  of  their  proportion  over  eighty  mill- 
ions in  all,  found  themselves  in  this  position  : 

Their  aggregate  coin,  which  on  the  i7th  August,  before  the  first  pay- 
ment into  the  Treasury,  was $49i733>99° 

Was  on  December  7th 42,318,610 

A  reduction  of  only $7>4i5>3So 

and  the  other  two  cities  in  like  proportion. 

In  the  meantime  the  7-3  notes  taken  by  the  Banks  had  been  purchased  by 
the  people  to  the  extent  of  some  fifty  millions,  notwithstanding  a  prolonged  and 
vexatious  delay  in  issuing  them  by  the  Treasury  Department.  The  popular  feel- 
ing was  all  that  could  have  been  desired  for  continuing  that  method  of  distri- 
bution. It  may  be  confidently  affirmed,  that,  had  the  Banks  been  permitted  to 
exercise  their  own  methods  of  exchanging  the  bonds  for  the  varied  products  of 
industry  required  by  the  government,  they  could  have  continued  their  advances 
in  sums  of  fifty  millions  for  an  indefinite  period,  and  until  the  available  resources 
of  the  people  had  been  all  gathered  in.  It  is  to  be  borne  in  mind  that  these 
resources  were  all  existing  at  home,  and  that  the  increased  industry  which  the 
war  excited  was  daily  increasing  new  means  for  investment.  .  •  . 

But  at  this  time  the  demand  notes  were  paid  out  freely  by  the  Treasury,  and 
began  to  appear  as  a  cause  of  embarrassment  among  the  Banks  which  were 
pressed  to  receive  them  upon  deposit  ;  and  while  they  could  not  decline  them 
without  diminishing  public  confidence  in  the  government  credit,  they  could  not 


UNITED    STATES    NOTES.  95 

give  them  currency  without  impairing  their  own  specie  strength.  ///  fact,  the 
notes  became  at  once  a  substitute  for  coin  withdrawn  from  circulation,  and  their 
emission  expressed  a  purpose  of  resorting  to  government  paper  issues  to  carry  on  the 
7i'<?r.  So  soon  as  these  notes  thus  appeared,  the  reflux  of  coin  to  the  Banks  at 
once  sensibly  diminished.  During  three  weeks  from  the  7th  December,  the  re- 
serves of  the  Banks  in  New  York  fell  to  $29,357,712,  —  a  loss  of  $13,000,000 
within  that  short  period  ;  and  on  the  28th  December,  after  conference  with  the 
Secretary,  in  which  he  still  adhered  to  the  views  before  expressed,  it  was  decided 
as  expedient  for  the  Banks  to  suspend  specie  payments. 

At  that  moment  the  Associated  Banks  yet  held  over  forty  millions  in  coin,  and 
it  was  still  possible  for  them  to  continue  their  advances  to  the  government  but  for 
the  two  obstacles  thus  interposed.  Before  entering  into  this  last  conference  with 
the  Associated  Banks,  some  of  the  members  expressed  to  the  Secretary  the  impor- 
tance of  continuing  his  relation  to  an  organization  which  combined  so  much  of 
experience,  capital,  and  financial  resource,  and  which  was  yet  capable  of  render- 
ing the  government  invaluable  service  ;  and  that  if  an  irredeemable  paper  cur- 
rency was  the  inevitable  resort,  it  would  be  more  expedient  and  economical  for 
the  government  not  to  become  involved  in  its  dangers,  but  to  impose  the  duty  and 
responsibility  of  issuing  the  notes  upon  the  Banks,  which  would  naturally  be  com- 
pelled to  keep  the  day  of  redemption  continually  in  view.  Thus,  as  a  suspension 
of  coin  payment  was  about  to  be  declared,  it  was  practicable  to  preserve  from 
distribution  and  set  aside  the  forty  millions  of  coin  then  owned  by  the  Banks, 
together  with  one  hundred  and  fifty  or  sixty  millions  of  government  bonds,  which 
could  be  taken  by  them  as  a  special  security  for  two  hundred  millions  of  notes, 
which  could  then  be  immediately  issued  by  the  Associated  Banks,  from  their  own 
plates,  and  be  verified  and  made  National  by  the  stamp  and  signature  of  a  govern- 
ment officer.  It  was  claimed  that  such  an  issue,  so  supported  by  coin  and  bonds, 
at  once  simple  and  expeditious,  would  serve  the  temporary  purpose  required,  with 
little  if  any  deterioration  below  coin  value  ;  and  that  it  would  be  then  practicable 
for  the  Banks  to  continue,  without  further  agitation,  their  advances.  But  the 
Secretary  declined  to  entertain  this  suggestion  ;  preferring  the  system  of  National 
Banks,  which  he  had  already  conceived. 

Looking  back  over  events  that  have  since  transpired,  it  must  be  admitted 
that  this  suggestion  possessed  true  merit.  It  would  have  preserved  a  coin  basis 
for  the  currency,  prevented  the  destructive  expansion,  relieved  the  government 
from  its  almost  inextricable  entanglement  with  the  circulating  notes,  and  compelled 
an  early  restoration  of  coin  payments.  And  with  a  proper  use  of  the  expedients 
and  machinery  of  Banks,  by  utilizing  their  power  of  effecting  exchanges,  which 
was  substantially  applied  by  the  Secretary  in  the  National  Banking  system  without 
reserve,  this  amount  would  have  been  found  sufficient.  When  we  review  the 
excessive  cost  of  the  war,  the  vast  increase  of  the  National  debt,  and  the  public 
and  private  evils  which  a  profuse  currency  has  entailed  upon  the  country,  it  must 
appear  evident  that,  in  failing  early  to  use  and  to  exhaust  all  those  means  and 
appliances  of  commerce  and  banking  that  the  experience  of  other  civilized  nations 
has  proved  most  effective,  a  great  and  irreparable  mistake  was  made.  .  . 

This  forcible  entry  of  the  government  into  the  private  affairs  of  the  people,  so 
utterly  at  variance  with  the  fundamental  principles  of  our  system,  so  great  an 


96  UNITED    STATES    NOTES. 

abridgment  of  personal  liberty,  and  operating  as  a  tax  so  unequal  in  its  effects, 
was  a  rigorous  measure  of  war,  and  as  such  was  vindicated  only  as  a  temporary 
act  of  dire  necessity.  In  enforcing  this  unequal  burden,  Congress  did  not  leave 
the  holders  of  the  notes  without  some  measure  of  relief  ;  but  it  gave  to  all  the 
option  of  converting  them  at  pleasure  into  a  six  per  cent,  gold-interest-bearing 
bond,  payable  in  twenty  years.  By  this  means,  the  notes  became  equal  in  value 
to  the  bonds  for  which  they  were  made  exchangeable  ;  and  while  during  the  war, 
the  payments  of  gold  interests  continually  operated  to  produce  a  curtailment  of 
the  volume  of  the  notes  in  circulation,  the  return  of  peace  opened  a  market  abroad 
for  the  bonds,  which  would  have  insured  the  early  and  entire  absorption  of  the 
war  currency,  and  thus  clear  the  way  for  specie  payments. 

But,  in  an  evil  hour  for  the  country,  other  counsel  obtained  possession  of  the 
good  judgment  of  the  Secretary  ;  and,  yielding  to  it,  he  consented  and  urged 
Congress  to  withdraw  this  privilege  of  converting  the  notes,  so  that  thenceforth 
all  issues  were  made  without  it.  All  notes  emitted  consequently  became  an  un- 
mitigated burden  upon  commerce,  of  indefinite  duration,  from  which  there  was  no 
escape.  A  new  currency  was  created,  utterly  at  variance  with  all  economic  laws, 
and  in  conflict  with  all  recognized  rules  of  commerce  and  exchange.  It  did  not, 
like  all  sound  currency,  naturally  spring  out  of  industry,  production,  and  trade  ; 
but  it  was  an  enforced  result  of  exhaustion  and  necessity.  It  did  not  come  and  go, 
following  the  beneficent  courses  of  commerce,  expanding  and  contracting  with 
the  times  and  seasons  that  required  it ;  but  it  remained  an  unyielding,  inflexible 
mass,  subject  only  to  the  chances  and  vicissitudes  of  war.  As  the  war  progressed 
and  the  country  became  poorer,  this  currency  increased,  giving  new  instruments 
and  facilities  to  expend  just  in  proportion  as  the  means  of  payment  were  consumed. 
With  a  compulsory  currency  thus  made  the  measure  of  prices,  and  daily  deteriorat- 
ing yet  still  increasing,  is  it  strange  that  all  other  ^property  was  eagerly  sought  for 
in  preference  to  this,  and  that  prodigal  expenditure  became  the  law  of  the  land?  l 

Here  is  a  picture  by  a  most  competent  hand,  a  leading  actor 
in  the  scenes  described,  of  the  events  which  led  to  the  suspension 
of  specie  payment  by  the  banks,  and  to  the  issue  by  the  United 
States  of  legal  tender  notes  which  still  remain  the  great  disturbing 
element  in  affairs.  It  is  to  be  read  and  re-read  by  every  one  who 
would  understand  the  situation  at  the  time,  and  the  levity  or  wanton- 
ness with  which  all  past  experience  was  thrown  aside,  and  the  coun- 
sel of  those  perfectly  competent  to  guide  spurned  by  the  weak,  vain, 
ignorant,  and  perverse  character  holding,  next  to  the  President,  the 
most  important  place  in  the  Government.  For  the  issue  at  the 
time  of  notes  to  serve  as  money  not  the  slightest  necessity  existed, 
as  through  the  banks  of  the  loyal  States  every  dollar  of  the  issues  of 
their  people,  at  the  value  of  coin,  could  have  been  reached  for  the 

1 "  Financial  History  of  the  War,"  by  George  S.  Coe,  President  of  the  American  Ex- 
change Bank.  See  "Banker's  Magazine,"  January,  1876. 


UNITED    STATES  .NOTES.  97 

prosecution  of  the  war,  and  far  more  effectually  by  their  issues  than 
by  those  of  the  Government.  At  the  time  the  only  currency  in 
ordinary  use,  and  by  all  classes  preferred  to  coin,  was  that  of  banks. 
It  would,  in  the  spirit  of  patriotism  that  was  aroused,  have  been 
accepted  by  the  people  in  their  military  as  readily  as  in  their  ordinary 
operations.  It  cannot  be  too  often  repeated  that  the  people  will 
never  use  any  other  than  paper  money  as  their  ordinary  instrument 
of  exchange.  Their  currency  will  always  be  that  of  banks  or  bankers, 
or  of  Government.  Why  were  not  recommendations  so  wise,  so 
reasonable,  and  so  earnestly  pressed  upon  the  Secretary,  heeded, 
that  in  the  emergency  the  money  of  commerce,  representing  as  it 
did  at  the  value  of  coin  precisely  the  kind  of  merchandise  required 
by  it  in  all  its  operations ;  which  was  of  the  value  of  coin  and  could 
be  had  in  unlimited  amounts,  or  in  amounts  equal  to  the  means  of 
the  people ;  means  as  the  result  showed  fully  adequate  to  the  de- 
mands to  be  made  upon  them,  should  be  that  of  the  Government  ? 
For  the  reasons  set  forth  in  the  following  extract  from  the  report  of 
the  Secretary,  made  under  date  December  10,  1861  : 

The  circulation  of  the  banks  of  the  United  States  on  the  ist  day  of 
January,  1861,  was  computed  to  be  $202,000,767.  Of  this  circulation,  $150,- 
000,000,  in  round  numbers,  was  in  the  States  now  loyal,  including  Western 
Virginia,  and  $50,000,000  in  the  rebellious  States.  The  whole  of  this  circulation 
constitutes  a  loan  without  interest  from  the  people  to  the  banks,  costing  them  nothing 
except  the  expense  of  issue  and  redemption  and  the  interest  on  the  specie  kept  on 
hand  for  the  latter  pitrpose  ;  and  it  deserves  consideration  whether  sound  policy 
does  not  require  that  the  advantages  of  this  loan  be  transferred,  in  part  at  least, 
from  the  banks  representing  only  the  interests  of  the  stockholders,  to  the  Govern- 
ment representing  the  aggregate  interests  of  the  whole  people. 

Here  is  the  old  story  inherited  from  Jackson  that  the  issues  of 
banks  were  forms  of  credit  costing  nothing,  but  for  the  use  of  which 
interest  was  charged ;  the  necessary  inference  on  the  part  of  the 
Secretary,  to  repeat  his  own  words,  being,  "  that  the  advantages 
of  such  loans  should  be  transferred,  in  part  at  least,  from  the  banks 
representing  the  interests  of  the  stockholders,  to  the  Government 
representing  the  aggregate  interests  of  the  whole  people."  To 
escape  the  exactions  of  the  banks,  lenders  of  money  of  their  own 
creation,  why  should  not  the  Government,  when  a  borrower  on  an 
enormous  scale,  create  by  an  act  of  sovereignty  money  for  itself, 
saving  thereby  a  sum  equal  to  the  interest  on  the  amount  created  ? 


98  UNITED    STATES    NOTES. 

If  the  currency  of  banks  by  a  small  provision  of  means  circulated 
readily  at  the  value  of  coin,  why  should  not  that  of  the  Government 
having  behind  it,  as  was  assumed,  the  entire  means  of  the  people  ? 
The  reply  is  as  obvious  as  it  is  conclusive.  The  legal  tender  notes, 
greenbacks,  now  outstanding  of  the  Government  were,  at  first,  forms 
of  credit  payable  at  its  pleasure.  For  the  time,  in  the  estimation  of 
those  receiving  them,  that  was  to  elapse  before  the  Government 
would  be  able  or  disposed  to  redeem  them  in  coin,  interest,  or  its 
equivalent  in  the  reduced  rates  at  which  they  were  accepted,  or  in 
the  increased  price  of  what  was  delivered  in  exchange  therefor,  was 
charged.  Forbearance  of  payment  at  the  instance  of  the  debtor  is 
always  to  be  purchased  in  one  form  or  another.  In  the  darkest  days 
of  the  rebellion  the  amount  charged  for  such  forbearance  was  nearly 
three  times  greater  than  the  nominal  value  of  the  notes.  When 
these  are  payable  presently  they  circulate  at  their  par  value  so  long  as 
confidence  in  the  issue  remains  unimpaired.  The  notes  of  the  Con- 
tinental Congress,  with  nothing  behind  them  but  the  credit  of  that 
body,  and  although  for  their  redemption  no  provision  was  made, 
circulated  for  nearly  two  years  at  the  par  of  coin.  It  may  be  laid 
down  as  a  rule  that  the  public,  so  long  as  confidence  is  unshaken, 
will  never,  from  the  convenience  of  their  use,  present  notes  to  the 
Government  for  payment.  They  will  be  presented  only  when  coin 
is  wanted  for  the  discharge  of  balances  arising  in  the  foreign  or 
domestic  trade  of  the-  country,  and  then  only  by  those  against  whom 
such  balances  arise.  The  evil  of  Government  notes  results  from  their 
being  instruments  in  excess  of  the  means  of  consumption,  not  arising 
naturally  out  of  the  industrial  operations  of  society,  being  always 
instruments  of  forced  loans.  They  are  always  in  excess  for  no  other 
reason  than  that  in  countries  like  the  United  States  the  issues  of 
banks,  whether  payable  presently  or  at  a  future  day,  always  equal 
in  their  nominal  amount  the  means  of  consumption.  They  are  pre- 
cisely in  the  nature  of  issues  made  by  banks  in  the  discount  of 
"accommodation  paper"  to  supply  the  lack  of  means  of  borrowers. 
Every  one  understands  that  as  a  rule  issues  so  made  will  be  improvi- 
dently  expended,  to  be  taken  in  consequently  by  the  issuers  by 
paying  out  a  corresponding  amount  of  their  reserves.  No  matter 
the  amount  issued  in  the  discount  of  merchants'  bills  no  distrust  or 
apprehension  can  be  created,  for  the  reason  that  they  measure  the 
value  of  the  subjects  of  consumption.  They  are  never  in  excess,  for 


UNITED    STATES    NOTES.  99 

the  reason  that  they  cannot  be  diverted  from  their  proper  function, 
the  distribution  of  their  constituent,  being  retired  by  the  process. 
Issues  made  in  the  discount  of  bills  not  representing  merchandise 
for  distribution,  having  no  appropriate  function,  speedily  find  their 
way  into  the  hands  of  those  who  present  them  as  creditors,  not 
debtors,  for  redemption,  the  issuers  usually  making  a  loss  equal  to 
their  amount.  The  disasters  which  overtake  the  issuers  of  currency 
arise  almost  wholly  from  the  discount  of  fictitious  paper.  The  loss 
is  the  same  whether  it  falls  upon  the  banks,  or,  in  their  inability  to 
make  good  their  issues,  upon  the  public.  In  either  case  the  currency 
must  be  contracted  in  ratio  to  the  waste  or  loss  that  has  been  sus- 
tained. The  notes  of  the  United  States,  now  that  it  assumes  to  be 
upon  a  specie  basis,  have  precisely  the  same  effect  in  the  waste  that 
results  as  the  notes  of  banks  issued  in  the  discount  of  "  accommoda- 
tion paper."  Provision  for  their  retirement  is  to  be  made  after 
instead  of  before  their  issue.  They  are  wholly  superfluous  as  instru- 
ments of  distribution,  as  the  necessary  amount  of  currency  therefor 
is  always  supplied  by  the  banks.  The  effect  of  their  retirement  is 
the  same  as  the  retirement  of  an  equal  amount  of  the  issues  of 
banks  made  in  the  discount  of  "  accommodation  paper,"  a  contrac- 
tion of  all  the  operations  of  society.  Ordinarily  the  retirement  of 
currency  issued  by  banks  is  not  felt,  as  new  issues  take  the  place 
of  the  old,  the  volume  in  prosperous  communities  always  steadily 
increasing  to  represent  new  creations  of  merchandise.  The  issues, 
well  made,  of  banks  can  create  no  waste,  as  their  constituent  cannot 
be  reached  unless  a  proper  equivalent  is  rendered  in  exchange.  The 
effect  of  the  discount  of  "  accommodation  paper  "  is  now  so  well 
understood  that  were  it  believed  that  the  amount  outstanding  by 
banks  equalled  that  of  the  Government  notes,  $830,000,000,  an 
instant  rush  would  be  made  for  the  reserves  of  the  issuers,  to  be 
followed,  from  the  inadequacy  of  means  immediately  at  their  com- 
mand, by  a  suspension  of  specie  payments.  That  a  corresponding 
rush  is  not  made  for  the  conversion  of  the  "accommodation  paper" 
of  the  Government  into  coin,  forcing  it  to  suspend  specie  payments, 
is  due  to  the  fact  that  so  far  no  considerable  apprehension  has  yet 
been  felt  by  the  great  mass  as  to  the  ability  or  disposition  of  the 
Government  to  make  good  its  issues,  the  means  of  the  whole  people, 
through  its  taxing  power,  being  assumed  to  be  pledged  therefor.  So 
long  as  this  is  the  case  the  notes  of  the  Government,  from  the  con- 


IOO  UNITED    STATES    NOTES. 

venience  of  their  use,  will  be  preferred  to  coin  as  money.  But  great 
apprehension  of  the  solvency  of  Government  in  case  of  a  run  upon  it 
is  now  felt  in  commercial  circles,  and  to  such  an  extent  that  within 
a  comparatively  short  period  it  has  been  forced  into  the  market  to 
raise  some  $300,000,000  in  gold  for  the  redemption  of  its  notes, 
without  any  considerable  diminution  in  their  amount,  as,  in  the  want 
of  adequate  revenues,  they  are  presently  re-issued.  No  matter  the 
amount  of  the  issues  of  banks  properly  made  there  can  be  no  run 
upon  them  for  gold,  as  they  will  as  a  rule  be  used  to  reach  their  con- 
stituent. The  distrust  once  confined  to  narrow  circles  is  spreading 
rapidly,  arresting  all  the  industrial  operations  of  the  country.  Every 
one  is  beginning  to  feel  that  something  is  wrong,  —  what,  he  cannot 
distinctly  see.  All  are  limiting  their  expenditures  to  their  absolute 
wants,  holding  with  a  tight  grip  whatever  they  have,  wearing  out  old 
possessions  before  new  ones  are  acquired.  Such  a  state  of  distrust 
cannot  long  continue  without  taking  shape  in  some  form.  Unless  a 
way  out  is  soon  shown,  the  people  will  take  the  remedy  into  their 
own  hands,  driving  the  Government  out  of  the  field  as  an  issuer  of 
currency  by  demanding  the  immediate  conversion  of  every  dollar  of 
its  issues  into  gold. 

The  manner  in  which  the  suspension  of  specie  payments  was 
precipitated  well  illustrates  the  delicacy  of  the  machinery  of  distri- 
bution, and  how  easily  it  may  be  thrown  out  of  gear.  The  loan 
taken  by  the  banks,  authorized  by  the  act  of  July  17,  1861,  provided 
that  $50,000,000  of  the  $250,000,000  might  be  in  the  form  of 
notes,  not  legal  tender,  payable  on  demand  in  coin.  No  sooner 
did  the  banks  begin  their  payments,  averaging  about  $1,000,000 
daily  of  the  great  loan,  than  a  small  amount  of  the  demand  notes 
of  the  Government  began  to  make  their  appearance.  No  sooner 
was  this  seen  than  the  Committee  of  the  Banks  immediately  and 
earnestly  remonstrated  against  their  issue,  urging  that  if  continued 
they  would  be  offered  in  payment  of  bills  discounted,  or  for  deposit, 
reducing  to  the  extent  so  received  the  return  of  the  gold  they  were 
paying  out :  that  if  persisted  in  the  worst  consequences  were  to  be 
feared.  "The  Secretary  assured  the  committee  of  his  acquiescence 
in  their  suggestion,  but  at  the  same  time  he  insisted  that  it  would 
be  improper  for  a  public  officer  openly  to  pledge  himself  not  to 
exercise  a  power  openly  conferred  upon  him  by  law."  Upon  such 
assurances  the  banks  proceeded  with  their  work.  The  result  far 


UNITED    STATES    NOTES.  IOI 

exceeded  their  expectations.  The  greater  part  of  the  gold  paid 
out  speedily  returned  to  them  on  deposit  or  in  the  payment  of  their 
bills.  It  would  naturally  return  to  them  as  its  proper  custodians  so 
long  as  confidence  was  undisturbed.  When  the  banks  of  the  city 
of  New  York  had  paid  out  something  over  $80,000,000,  their  share 
of  the  two  first  instalments  of  the  loans,  they  held  $42,318.610, 
against  $49,733,990  when  they  began  their  payments,  the  loss  being 
only  $7,415,380.  The  result  may  seem  remarkable,  as  the  gold 
paid  out  was  scattered  broadcast  over  the  length  and  breadth  of  the 
land.  Time  given  and  confidence  preserved,  every  dollar  would  have 
necessarily  returned  so  as  to  be  largely  available  for  future  loans. 
When  the  banks  entered  upon  the  payment  of  the  third  instalment, 
the  Secretary,  in  violation  of  his  express  assurances,  began  the  issue 
on  a  large  scale  of  Treasury  Notes  to  serve  as  money,  the  amount 
reaching  in  a  comparatively  short  period  the  sum  of  $33,460,000. 
As  soon  as  it  was  seen  that  very  large  issues  were  being  made  the 
Committee  of  the  Banks  again  urged  their  remonstrances,  remind- 
ing the  Secretary  of  the  assurances  that  had  been  given  them,  to 
all  of  which  he  now  turned  a  deaf  ear.  The  result  of  the  largely 
increased  issue  of  Government  notes  was  that  the  specie  in  the  New 
York  banks  fell  from  $42,318,610,  December  7,  1861,  to  $29,357,- 
712,  December  27,  the  loss  equalling  $13,000,000  in  a  period  of 
about  three  weeks.  Within  another  month,  their  payments  con- 
tinued, the  banks  might  find  themselves  without  a  dollar  of  specie 
in  their  vaults,  leaving  them  no  reserves  for  liabilities  to  the  public 
to  the  amount  of  $100,000,000.  In  view  of  the  situation,  on  the 
28th  of  December,  they  decided  to  suspend  specie  payments,  to 
be  followed  by  the  Government  as  well  as  by  all  the  banks  of  the 
country. 

But  even  with  the  suspension  of  specie  payments  it  was  urged  by 
the  representatives  of  the  banks  of  the  city  of  New  York  "that  if 
an  irredeemable  currency  was  the  inevitable  resort,  it  would  be 
more  expedient  and  economical  for  Government  not  to  become  in- 
volved in  its  danger,  but  to  impose  the  duty  and  responsibility  of 
issuing  notes  upon  the  banks,  which  would  naturally  be  compelled 
to  keep  the  day  of  redemption  constantly  in  view,"  -  —  the  proposi- 
tion being  to  set  apart  the  gold  still  held  by  them,  with  $150,000,000 
bonds  to  be  issued  by  the  Government,  the  whole  to  be  made  a 
basis  of  the  issue  of  $200,000,000  of  notes  by  the  banks,  to  be  veri- 


102  UNITED    STATES    NOTES. 

fied  and  made  national  by  the  stamp  of  the  Government.  With 
such  provision  it  was  held  that  the  notes  to  be  issued  would  circu- 
late very  nearly  if  not  quite  at  the  value  of  coin,  their  redemption 
being  thrown  wholly  upon  the  banks.  But  this  suggestion  was 
rejected  by  the  Secretary  in  order  to  make  way  for  an  issue  of 
Government  notes.  To  speed  their  issue  he  addressed,  on  the  3d 
of  February,  1862,  a  communication  to  the  Hon.  E.  G.  Spaulding, 
member  of  the  Committee  of  Ways  and  Means  of  the  House,  in 
which,  among  other  things,  he  said  : 

It  is  true  that  I  came  with  reluctance  to  the  conclusion  that  the  legal  tender 
clause  is  a  necessity,  but  I  came  to  it  decidedly,  and  I  support  it  earnestly.  I 
do  not  hesitate  when  I  have  made  up  my  mind,  however  much  regret  I  may  feel 
over  the  necessity  of  the  conclusion  to  which  I  come. 

Immediate  action  is  of  great  importance.  The  Treasury  is  nearly  empty.  I 
have  been  obliged  to  draw  for  the  last  instalment  of  the  November  loan  ;  so  soon 
as  it  is  paid  I  fear  the  banks  generally  will  refuse  to  receive  the  United  States 
notes.  You  will  see  the  necessity  of  urging  the  bill  through  without  more  delay. 

Permission  given,  the  Government  notes  were  poured  out  like 
water  until,  in  various  forms,  they  reached  the  enormous  sum  of 
$684,138,959,  of  which  $433,160,569  were  in  the  form  of  plain 
notes,  —  greenbacks;  $217,024,160  of  compound  interest  legal 
tender  notes;  and  $33,954,203  of  five  per  cent,  notes.  The 
amount  of  plain  notes  outstanding  each  fiscal  year  from  1862  to 
1878,  inclusive,  was  as  follows: 

Statement  showing  the  circulation  of  legal  tender  notes  in  the  United  States,  from 
1862  to  1878,  inclusive. 

Legal  lender  Legal  tender  Legal  tender 

Years.         notes.  Years.  notes.  Years.  notes. 

1862  $96,620,000  1868      $356,000,000  1874      $382,000,000 

1863  297,767,114       1869   356,000,000      1875   375. 77i»58o 

1864  431,178,670  1870  356,000,000  1876  369,772,284 

1865  432,687,966  1871  356,000,000  1877  359-764,332 

1866  400,619,206  1872  357,500,000  1878  346,681,016 

1867  371,783,599  1873  356,000,000 

The  interest  bearing  legal  tender  notes  never  entered  into 
general  circulation,  and  were  at  the  close  of  the  war  speedily  con- 
verted into  long  bonds  of  the  Government. 

In  his  annual  report  for  1865  Mr.  McCullough,  who  followed  Mr. 
Chase  as  the  Secretary  of  the  Treasury,  warmly  urged  upon  Congress 


UNITED    STATES    NOTES.  103 

that,  as  the  issue  of  the  notes  was  a  "war  measure,"  the  first  care  of 
Government,  the  war  ended,  should  be  their  retirement.  In 
response  the  House  of  Representatives,  by  a  vote  of  144  to  6, 
adopted  a  resolution  "  cordially  approving  the  views  of  the  Secretary 
of  the  Treasury  in  relation  to  the  necessity  of  contracting  the  cur- 
rency with  a  view  to  the  early  resumption  of  specie  payments." 
This  resolution  was  followed  by  an  act  of  Congress  of  March  1 2,  1866, 
authorizing  cancellation  of  legal  tender  notes  not  exceeding  the 
amount  of  $10,000,000  within  six  months  from  the  passage  of  the 
act,  and  thereafter  at  the  rate  of  $4,000,000  per  month.  Under 
this  act  the  amount  of  the  notes,  December  31,  1867,  was  reduced 
to  $356,000,000.  On  the  fourth  of  February,  1868,  an  act  was 
passed  forbidding  a  further  reduction  of  the  notes.  Their  amount 
was  increased  in  the  period  from  October  i,  1872,  to  January  15, 

1874,  to  $382,979,815.     By  the  act  of  June  20,  1874,  the  maximum 
of  the  notes  was  fixed  at  $382,000,000.     By  the  act  of  January  14, 

1875,  authorizing  the  increase  of  circulation  of  the  notes  of  the 
National  Banks,  the  Secretary  was  required  to  retire  legal  tender  notes 
to  an  amount  equalling  80  per  cent,  of  the  notes  issued  to  them,  till  the 
legal  tender  notes  were    reduced   to  $300,000,000.      Under   the 
operation  of  the  last  preceding  act  notes  to  the  amount  of  $35,- 
318,984  were  cancelled,  the  total  amount  being  reduced  to  $346,- 
610,016,  the  amount  now  outstanding.     On  the  thirty-first  of  May, 
1878,  an  act  was  passed  that  "  when  any  of  said  notes  be  redeemed 
or  received  into  the  Treasury  they  shall  not  be  retired,  cancelled, 
or  discharged,  but  they  shall  be  reissued  and  paid  out  again  and 
kept  in  circulation." 

Mr.  Coe  dwelt  with  almost  mournful  emphasis  upon  the  with- 
drawal by  Congress  of  the  rights  of  the  holders  of  the  notes  to  con- 
vert them  at  pleasure  into  the  bonds  of  the  government.  If  the 
right  had  not  been  withdrawn  it  is  certain,  but  for  restrictions  im- 
posed upon  the  issues  of  bank  notes,  that  the  whole  amount  of  the 
government  notes  would  have  been  retired  without  the  intervention 
of  a  dollar  in  gold.  With  the  end  of  the  war,  the  great  "  war  meas- 
ure," the  issue  of  legal  tender  notes,  as  it  was  termed,  without  any 
further  action  on  the  part  of  the  Government,  would  have  silently 
disappeared,  debt  of  the  Government  bearing  interest  being  always 
preferable  to  debt  bearing  no  interest.  Of  this  withdrawal  Mr. 


104  UNITED    STATES    NOTES. 

Spaulding,  in  his  "  Financial  History  of  the  War,"  gave  the  following 
account : 

The  first  legal  tender  notes  were  issued  bearing  date  March  10,  1862,  and 
on  the  back  of  them  was  printed  these  words : 

"  This  note  is  a  legal  tender  for  all  debts,  public  and  private,  except  duties 
on  imports  and  interest  on  the  public  debt,  and  is  exchangeable  for  United  States 
six  per  cent,  bonds ,  redeemable  at  the  pleasttre  of  the  United  States  after  Jive  years.'''' 

The  right  to  exchange  these  notes  at  par  for  six  per  cent,  bonds  was  dis- 
tinctly authorized  by  the  second  section  of  the  legal  tender  act,  and  was  in  the 
nature  of  a  contract  made  by  the  Government  with  the  holders  of  the  notes.  It 
was  inserted  as  a  just  and  equitable  provision  for  the  benefit  of  those  persons  who 
should  be  compelled,  by  the  legal  tender  clause,  to  take  the  notes,  by  giving  them, 
at  any  time,  the  privilege  of  converting  them  into  a  six  per  cent.  bond.  It  was, 
in  effect,  a  forced  loan,  but  the  right  of  immediately  returning  them  to  the  Gov- 
ernment for  gold  bonds  divested  the  forced  character  of  the  transaction  of  any 
material  hardship.  It  also  had  a  tendency  to  prevent  any  great  inflation,  for  the 
reason  that  as  soon  as  this  currency  became  redundant  in  the  hands  of  the  people, 
and  not  bearing  interest,  they  would  invest  it  in  the  six  per  cent,  bonds  to  pre- 
vent any  loss  of  interest. 

This  right  to  exchange  the  notes  for  bonds  was,  at  the  request  of  Secretary 
Chase,  taken  away  by  the  third  section  of  the  above  act  after  July  I,  1863.  It  is 
true  that  the  Secretary  had  still  the  discretionary  power  to  receive  the  notes  at 
par  for  bonds,  but  it  never  seemed  to  be  quite  right  to  change  the  law  while  any 
of  the  legal  tender  notes  were  outstanding  with  the  above  endorsement  upon 
them. 

The  act  forbidding  the  further  cancellation  of  the  United  States 
notes  was  undoubtedly  due  to  the  influence  of  Mr.  Sherman,  at  the 
time  Secretary  of  the  Treasury,  now  Secretary  of  State  of  the  United 
States.  In  his  annual  report  for  1877  he  considered  at  great 
length  the  financial  policy  of  the  Government,  and  the  various  forms 
of  money  in  use.  The  occasion  was  one  of  supreme  importance,  as 
the  Government,  by  the  Act  of  January  14,  1875,  was  to  resume 
specie  payment  on  the  first  of  January,  1879.  The  question  of  the 
kind  of  money  for  the  future  was  to  be  determined,  —  whether 
greenbacks  should  be  continued  as  the  money  of  the  country,  or 
whether  a  return  should  be  made  to  the  money  of  banks  —  of  com- 
merce —  springing  naturally  out  of  the  business  operations  of  the 
country.  Of  that  discussion  Mr.  Sherman,  in  his  "  Forty  Years  in 
the  House,  Senate,  and  Cabinet,"  published  in  1895,  gave  the  fol- 
lowing synopsis : 

I  expressed  in  my  report  the  opinion  that  the  notes  of  the  Government, 
when  redeemed  after  the  ist  of  January,  1879,  if  the  amount  outstanding  was  not 


UNITED    STATES    NOTES.  105 

in  excess  of  $300,000,000,  might  be  reissued  as  the  exigencies  of  the  public  ser- 
vice required.  .  .  .  These  notes  were  of  great  public  convenience  —  they 
circulated  readily  ;  were  of  universal  credit  ;  were  a  debt  of  the  people  without 
interest  ;  were  protected  by  every  possible  safeguard  against  counterfeiting  ;  and, 
when  redeemable  in  coin  at  the  demand  of  the  holder,  formed  a  paper  currency 
as  good  as  had  yet  been  devised.  ...  It  was  conceded,  I  said,  that  a  certain 
amount  could,  with  the  aid  of  an  ample  reserve  in  coin,  be  always  maintained  in 
circulation.  Should  not  the  benefit  of  this  circulation  inure  to  the  people,  rather 
than  to  corporations,  either  State  or  national?  The  Government  had  ample 
facility  for  the  collection,  custody,  and  care  of  the  coin  reserves  of  the  country. 
.  .  I  said  that  the  legal  tender  quality  given  to  United  States  notes  was 
intended  to  maintain  them  in  forced  circulation  at  a  time  when  their  depreciation 
was  inevitable.  When  they  were  redeemable  in  coin  this  quality  might  either  be 
withdrawn  or  retained,  without  affecting  their  use  as  currency  in  ordinary  times. 
But  all  experience  has  shown  that  there  were  periods  when,  under  any  system  of 
paper  money,  however  carefully  guarded,  it  was  impracticable  to  maintain  actual 
coin  redemption.  Usually  contracts  would  be  based  upon  current  paper  money, 
and  it  was  just  that,  during  a  sudden  panic,  or  an  unreasonable  demand  for  coin, 
the  creditor  should  not  be  allowed  to  demand  payment  in  other  than  the  currency 
upon  which  the  debt  was  contracted.  To  meet  this  contingency,  it  would  seem 
to  be  right  to  maintain  the  legal  tender  quality  of  the  United  States  notes.  If 
they  were  not  at  par  with  coin  it  was  the  fault  of  the  Government  and  not  of  the 
debtor,  or,  rather,  it  was  the  result  of  unforeseen  stringency  not  contemplated  by 
the  contracting  parties. 

In  establishing  a  system  of  paper  money,  designed  to  be  permanent,  I  said 
it  should  be  remembered  that  theretofore  no  expedient  had  been  devised,  either 
in  this  or  other  countries,  that  in  times  of  panic  or  adverse  trade  had  prevented 
the  drain  and  exhaustion  of  coin  reserves,  however  large  or  carefully  guarded. 
Every  such  system  must  provide  for  a  suspension  of  specie  payment.  Laws  might 
forbid  or  ignore  such  a  contingency,  but  it  would  come  ;  and  when  it  came  it 
could  not  be  resisted,  but  had  to  be  acknowledged  and  declared,  to  prevent 
unnecessary  sacrifice  and  ruin.  In  our  free  Government  the  power  to  make  this 
declaration  would  not  be  willingly  intrusted  to  individuals,  but  should  be  deter- 
mined by  events  and  conditions  known  to  all.  It  would  be  far  better  to  fix  the 
maximum  of  legal  tender  notes  at  $300,000,000,  supported  by  a  minimum  reserve 
of  $100,000,000,  of  coin,  only  to  be  used  for  the  redemption  of  notes,  not  to  be 
reissued  until  the  reserve  was  restored.  A  demand  for  coin  to  exhaust  such  a 
reserve  might  not  occur,  but,  if  events  should  force  it,  the  fact  would  be  known 
and  could  be  declared,  and  would  justify  a  temporary  suspension  of  specie  pay- 
ments. Some  such  expedient  could,  no  doubt,  be  provided  by  Congress  for  an 
exceptional  emergency.  In  other  times  the  general  confidence  in  these  notes 
would  maintain  them  at  par  in  coin,  and  justify  their  use  as  reserves  of  banks  and 
for  the  redemption  of  bank  notes. 

There  can  be  no  doubt  that  the  notes  of  the  United  States  seemed 
to  be  a  great  public  convenience.  All  forms  of  money  are  alike 


106  UNITED    STATES    NOTES. 

convenient  so  long  as  circulation  is  to  be  had  for  them,  as  to  their 
holders  they  have  the  potency  of  capital.  That  which  seems  at  the 
outset  to  be  good  money  may  in  the  end  prove  to  be  the  worst 
kind  of  money,  even  if  finally  taken  in  at  its  nominal  value.  No 
money  seems  more  convenient  than  the  issues  of  banks  made  in  the 
discount  of  "  accommodation  paper,"  yet  no  kind  is  worse,  as  the 
waste  and  loss  are  usually  in  ratio  to  the  amount  issued.  A  long 
time  may  elapse  before  the  kind  is  disclosed.  So  the  notes  of  the 
United  States,  instead  of  being  as  "good  money  as  has  been 
devised,"  were  the  very  worst  kind,  no  adequate  provision  being 
made  previous  to  their  issue  for  their  redemption,  there  being  no 
limit  to  their  issue  but  the  caprice  or  necessity  of  the  issuer.  For 
such  money  the  appropriate  penalty  will  always  be  exacted.  It  has 
in  our  case  been  already  exacted  in  the  apprehension  that  has  been 
created,  arresting  to  a  greater  or  less  extent  all  the  operations  of 
our  people.  The  penalty  already  paid  exceeds  fifty-fold  any  assumed 
advantage  of  "  debt  without  interest."  After  all  that  has  been  suf- 
fered a  more  terrible  penalty  still  may  have  to  be  paid,  —  suspension 
of  specie  payments  by  the  Government,  to  be  followed  by  all  issuers 
throughout  the  country. 

With  the  Secretary,  money,  whatever  the  kind,  derives  its  value 
from  the  necessity  of  a  medium  of  exchange,  the  greater  part  of  it 
to  remain  in  circulation.  It  is  only  the  excess  of  issue  that  will 
ordinarily  be  presented  for  coin.  As  it  is  the  rule  with  banks  to 
provide  reserves  equalling  twenty-five  per  cent,  of  their  issues,  our 
Government,  when  it  determined  to  remain  in  the  field,  assumed  to 
provide  reserves  in  similar  ratio  to  its  immediate  liabilities.  It 
wholly  overlooked  the  fact  that  in  addition  to  their  reserves  the 
banks  have  the  undertaking  of  the  customers  to  return  to  them  every 
dollar  of  their  issues  without  interposition  on  their  part.  While  with 
the  Secretary  the  excess  only  was  ordinarily  to  be  provided  for,  it 
might  happen  that  all  the  issues  might  be  suddenly  presented  for 
coin.  "All  experience,"  he  said,  "has  shown  that  there  were 
periods  when  under  any  system  of  paper  money,  however  carefully 
guarded,  it  was  impossible  to  maintain  actual  coin  redemption." 
Nothing  is  easier  than  to  maintain  coin  redemption  of  paper  money 
which  symbolizes  the  subjects  of  consumption,  as  such  money  cannot 
be  diverted  from  its  use  to  reach  its  constituent ;  and  as  the  makers 
of  bills  discounted,  into  whose  hands,  as  the  holders  of  merchandise, 


UNITED    STATES    NOTES.  1 07 

the  issues  of  banks  necessarily  flow,  instead  of  presenting  them  for 
coin,  will  hold  them  for  the  payment  of  their  bills.  When  a  cur- 
rency is  symbolic  the  merchandise  it  represents  will  ordinarily  be 
taken  for  consumption  within  the  time  in  which  the  bills  have  to 
run.  Consumption  goes  on  as  steadily  after  suspension  of  specie 
payments  by  banks  as  before.  To  reach  their  constituents  the 
issues  of  those  in  suspension  are  as  valuable  as  before.  In  the 
event  of  a  panic,  as  issuers  naturally  stop  discounting,  sixty  days 
will  ordinarily  suffice  for  the  return  to  them  of  all  their  issues  without 
the  paying  out  of  a  dollar  of  coin.  The  laws  of  trade  speedily  place 
them  in  position  to  resume  business,  as  the  gold  with  which  they 
may  have  parted  returns  in  the  payment  of  their  bills,  or,  confidence 
restored,  for  deposit.  Panics  arise  and  runs  are  made  upon  issuers 
solely  from  the  violation  of  the  proper  rules  of  issue.  So  long  as 
these  are  observed,  no  disturbance  calling  for  coin  can  arise,  either 
in  the  foreign  or  domestic  trade  of  the  country.  But  the  issues  of 
governments  will  never  be  made  in  the  discount  of  bills  the  pay- 
ment of  which  necessarily  retires  the  issues  made  in  their  discount. 
Their  reserves,  consequently,  —  the  only  means  provided  to  meet 
their  immediate  liabilities,  —  will  bear  only  a  very  small  ratio  to  the 
amount  of  the  latter,  in  order  that  the  greatest  advantage  may  be 
secured  from  a  money  of  "debt  without  interest."  No  other  pro- 
vision for  the  retirement  of  the  notes  of  governments  will  ever  be 
made  than  their  reserves.  If  full  provision  were  to  be  made  for  the 
redemption  of  their  notes  their  issue  would  never  suggest  itself. 
If  provided  by  creating  debt  in  another  form,  they  would  lose  a  sum 
equal  to  the  interest  on  the  amount,  no  charge  being  made  for  their 
issues,  necessarily  "debt  without  interest,"  or  if  the  amount  equal 
to  the  issues  were  provided  by  taxation  the  public  would  be  without 
interest  on  a  corresponding  sum. 

As  panics  under  a  Government  currency  will  necessarily  arise,  the 
only  alternative  is  a  suspension  of  specie  payment  to  be  proclaimed 
as  soon  as  it  is  seen  that  the  run  upon  it  is  to  be  a  formidable  one. 
It  is  here  that,  according  to  the  Secretary,  the  value  and  importance 
of  the  legal  tender  attribute  comes  in,  in  order  that  "  the  creditor  may 
not  be  allowed  to  demand  payment  in  any  other  currency  than  that 
in  which  the  debt  was  contracted;  "  and  further,  "as  every  system 
of  paper  money  must  provide  for  suspension  of  specie  payment  it 


IOS  UNITED    STATES    SAFETY-FUND    BANKING    SYSTEM. 

would  have  to  be  acknowledged  and  declared  to  prevent  unnecessary 
sacrifice  and  ruin.  ...  In  our  free  Government  the  power  to 
make  such  declaration  would  not  be  willingly  intrusted  to  individuals, 
but  should  be  determined  by  conditions  known  to  all,"  —  that  is,  first 
known  to  the  Government,  which  would  be  the  first  called  upon  for 
coin,  its  notes  serving  as  the  reserves  of  all  other  issuers  of  currency. 
"  In  case  of  a  suspension  the  fault  would  be  that  of  the  Government, 
not  of  the  debtor ;  or,  rather,  it  would  be  the  result  of  an  unforeseen 
stringency  not  contemplated  by  the  contracting  parties."  But  with 
a  Government  currency  all  contracts  are  entered  into  at  the  value 
of  coin.  The  Government  notes  are  assumed  to  be  the  equivalents 
of  coin.  If,  upon  suspension,  they  fall  greatly  in  value,  the  creditor 
must  suffer  in  like  ratio.  The  Continental  currency,  at  the  outset 
legal  tender,  and  a  very  "convenient  form  of  money,"  circulated  for 
a  considerable  period  at  its  nominal  value.  Those  accepting  it  in 
exchange  for  property  or  merchandise,  and  holding  it,  made  a  loss, 
equal  to  the  nominal  amount  received.  The  history  of  the  times  is 
full  of  pictures  of  the  terrible  suffering  that  resulted.  In  the  war  of 
the  Rebellion  vast  losses  were  suffered  from  the  fall  of  value  of  the 
notes,  at  one  time  to  about  one-third  of  their  nominal  value.  For- 
tunately, as  was  the  case  of  the  war  of  Independence,  they  have  not 
been  repudiated,  still  remaining  the  pest  and  menace  of  the  nation. 
But  where  does  this  function  or  right  of  the  Government  to  declare 
suspension  of  specie  payments  leave  the  commercial,  industrial,  and 
monetary  interests  of  the  country,  —  with  weak,  ignorant,  vain,  or 
unscrupulous  politicians  in  the  Department  of  the  Treasury,  a  prey 
to  their  caprices  or  fears ;  or  posing  as  the  particular  champions  of 
"the  people"?  Is  it  not  better  to  leave  the  currency  to  the 
guidance  of  national  laws  than  to  such  guardians  as  these? 

UNITED    STATES    SAFETY-FUND    BANKING    SYSTEM. 

The  second  measure  that  distinguished  Mr.  Chase's  administra- 
tion of  the  finances  was  the  establishment  of  our  present  National 
Safety  Fund  Banking  System.  The  first  act  therefor,  greatly  amended 
by  that  of  June  3,  1864,  was  passed  February  25,  1863.  Its  most 
important  feature  was  the  provision  made  for  the  conversion  of  the 
notes  of  issuers  into  coin  by  deposits  of  securities  over  which  they 
had  no  control.  No  more  absurd  and  ill-timed  measure  could  have 
been  devised.  The  Government  derived  no  considerable  advantage 


UNITED    STATES    SAFETY-FUND    BANKING    SYSTEM.  109 

therefrom,  either  in  the  sale  of  bonds  or  in  the  increase  of  the  cur- 
rency. There  was  never  any  difficulty  in  selling  bonds,  while  it 
could  readily  create  for  itself  all  the  currency  that  was  wanted. 

No  National  Bank  currency,  said  Mr.  Spaulding  in  his  "  Financial  History  of 
the  War,"  was  issued  until  about  the  first  of  January,  1864.  After  that  time  it  was 
gradually  issued.  On  the  first  of  July,  1864,  the  sum  of  $25,825,695  had  been 
issued  ;  and  on  the  22d  of  April,  1865,  shortly  after  the  surrender  of  General 
Lee,  the  whole  amount  of  National  Bank  circulation  issued  to  that  time  was 
only  $146,927,975.  It  will  therefore  be  seen  that  comparatively  little  direct  aid 
was  realized  from  this  currency  until  after  the  close  of  the  war.  All  the  channels 
of  circulation  were  ivellji lied  up  with  the  greenback  notes  ^  compound  interest  notes , 
and  certificates  of  indebtedness  to  the  amount  of  over  $700,000,000,  before  the 
.\ational  Bank  act  got  fairly  into  operation.  J^his  bank  issue  was  in  fact  an 

additional  inflation  of  the  currency. 

*•> 

It  has  already  been  sufficiently  shown  that  the  conversion  of  notes 
of  banks  into  coin  can  be  amply  secured  by  restrictions  imposed  upon 
issuers  to  the  discount  of  merchants'  bills.  So  long  as  such  rule  is 
observed  the  issues  made  will  be  employed  as  instruments  to  reach 
their  constituents,  for  which  they  serve  equally  well  with  coin.  With 
it  the  notes  returning  for  coin  will  never  as  a  rule  exceed  the  amount 
of  the  reserves  of  the  issuers.  For  a  period  of  forty  years  under  the 
two  banks,  the  currency,  whether  issued  by  the  State  or  National 
Banks,  although  in  terms  payable  in  coin,  was  almost  wholly  retired 
by  its  use  in  reaching  its  constituents.  By  such  use  it  came  directly 
into  the  hands  of  holders  of  merchandise,  to  be  returned  by  them  to 
the  issuers  in  the  payment  of  their  bills.  During  the  existence  of 
the  two  banks  the  suggestion  never  occurred  to  the  holder  of  a  note,, 
whether  of  National  or  State  Banks,  that  it  was  not  adequately 
secured ;  that  it  needed  any  other  guarantee  for  its  payment  than  its 
constituent,  supplemented  by  the  reserves  of  the  issuers.  The  result 
was  secured  by  restrictions  imposed  by  law  upon  a  single  institution, 
the  National  Bank,  which,  from  its  commanding  position  as  the 
holder  of  the  public  revenues,  was  able  to  compel  all  other  issuers 
to  make  good  daily  all  balances  arising  against  them.  As  the  char- 
ters of  State  Banks  allowed  them  to  make  loans,  no  matter  the  kind 
of  security,  upon  whatever  promised  the  greatest  return,  no  sooner 
was  the  National  Bank  out  of  the  way  and  all  restrictions  removed, 
than  the  picture  so  graphically  drawn  by  Mr.  Buchanan  became  pos- 
sible. As  no  other  than  paper  money  was  to  be  that  of  the  people, 
their  instinct  naturally  turned  to  the  improvement  of  that  in  use. 


IIO  UNITED    STATES    SAFETY-FUND    BANKING    SYSTEM. 

One  of  the  first  measures  of  the  kind  adopted  was  the  Suffolk  Bank 
system,  by  which  all  the  banks  of  the  New  England  States  entered 
into  an  agreement  to  redeem  daily  in  Boston,  their  business  metropo- 
lis, at  the  Suffolk  Bank,  all  balances  found  against  them.  It  was  a 
Clearing  House  which  included  the  banks  of  six  States.  A  bank 
which  did  not  belong  to  it  could  obtain  no  circulation  for  its  notes. 
It  was  the  "  Suffolk  "  system  which  suggested  the  establishment  of 
Clearing  Houses  for  banks  of  the  same  city,  and  which  are  now 
to  be  found  in  every  considerable  place  of  business  in  the 
United  States.  When  Mr.  Buchanan's  picture  was  drawn  the  New 
England  States  had  a  currency  perfectly  sound  and  perfectly  suited 
to  the  wants  of  the  people,  as  had  New  York  and  other  cities  in 
which  Clearing  Houses  had  been  established.  With  such  establish- 
ments without  the  intervention  of  positive  law,  a  perfect  currency, 
through  the  operation  of  natural  laws,  would  have  been  secured  to 
every  part  of  the  country.  A  currency  will  always  be  relative  to  the 
condition  of  a  people.  In  needy  communities  the  temptation, 
too  strong  to  be  resisted,  will  lead  to  the  issue  of  bank-notes  with- 
out any  proper  constituent.  Among  other  remedies  adopted  by 
many  States  following  the  overthrow  of  the  Bank  of  the  United 
States  was  the  establishment  of  Safety  Fund  Systems  upon  which 
the  present  Safety  Fund  System  was  modelled,  except  in  the  kind 
of  securities  to  be  deposited.  Those  accepted  under  the  State 
systems  might  be  real  property,  or  bonds,  often  largely  depreci- 
ated, of  State  or  municipal  bodies.  The  weakness  of  every  Safety 
Fund  System  is  that,  with  provision  of  adequate  security  for  their 
notes,  the  issuers  part  with  the  means  necessary  to  carry  on  their 
operations.  The  first  step  in  the  direction  of  reform  is  the  total 
abolition  of  the  existing  system,  and  in  the  place  of  securities, 
restrictions  of  issues  to  bills  of  exchange,  by  means  of  which  a 
perfect  currency  will  be  created,  always  adequate  and  always 
flexible  in  representing  the  subjects  of  consumption. 

But  the  burdens  imposed  by  our  present  system  and  the  obstacles 
it  presents  to  all  remedial  measures  are  by  no  means  the  only  wrongs 
committed  by  its  establishment.  State  Banks  as  the  issuers  of  notes 
existed  at  the  foundation  of  the  Government.  The  right  was  un- 
challenged for  a  period  of  seventy-two  years.  For  the  whole  period 
of  our  existence  as  a  nation  the  greater  part  of  the  currency  has 
been  supplied  by  them ;  for  nearly  seventy  years  the  whole  of  it. 
The  exercise  of  such  right  unchallenged  for  so  long  a  period  was 


UNITED    STATES    SAFETY-FUND    BANKING    SYSTEM.  Ill 

equivalent  to  a  provision  in  the  Constitution  in  its  favor.  It  would 
have  been  such  an  equivalent  with  any  other  people  than  our  own. 
We  have  a  dual  government  with  a  vast  number  of  powers  reserved 
to  the  States.  The  creation  of  corporations  was  certainly  a  right 
which  they  might  exercise.  The  National  Government  may  levy 
taxes  for  the  purpose  of  revenue,  but  it  cannot,  by  the  mode  of  their 
levy,  purposely  destroy  rights  or  powers  reserved  to  the  States.  All 
taxes  must  be  uniform  in  their  application.  Now  the  tax  of  10  per 
cent,  on  the  circulation  of  States  Banks  was  not  levied  for  revenue ; 
none  was  expected  from  it.  It  was  equivalent  to  a  declaration  that 
the  banks  should  not  exercise  one  of  the  functions  alike  necessary 
and  proper  to  their  welfare.  It  was  levied,  not  for  revenue,  but  for 
the  purpose  of  creating  a  market  for  bonds.  If,  under  the  pretext  of 
taxation,  the  National  Government  can  destroy  the  banks  of  the 
States,  it  could,  under  the  same  pretext,  destroy  or  render  valueless 
all  corporations,  —  insurance,  manufacturing,  railroad  companies 
and  the  like,  reducing  the  States  to  the  position  of  mere  creatures 
of  its  will. 

In  the  denial  to  the  State  Banks  of  the  right  to  issue  notes,  the 
National  Banks,  from  the  burdens  imposed,  restricting  themselves 
to  the  minimum  amount  of  issues,  we  seem  to  have  exhausted  human 
ingenuity  in  the  creation  of  the  worst  possible  monetary  system 
that  could  be  devised.  If  the  State  Banks  had  been  left  free  we 
should  have  had  long  ago  a  currency  perfect  in  its  kind  from  the 
application  of  the  methods  that  have  been  described.  Left  free, 
the  inevitable  antagonism  that  would  have  arisen  between  their 
issues  and  those  of  the  National  Government  would  have  long  ago 
driven  the  latter  out  of  the  field. 

The  climax  of  this  strange  episode  in  our  history  was  the  elevation 
of  Mr.  Chase  from  the  office  of  Secretary  of  the  Treasury  to  the 
Chief  Justiceship  of  the  Supreme  Court  of  the  United  States.  In 
that  exalted  position  the  question  of  the  constitutionality  of  the  issue, 
of  which  he  was  the  chief  instrument,  of  the  legal  tender  notes,  came 
up  for  adjudication  and  was  declared  by  him  to  exceed  the  con- 
stitutional powers  of  the  Government.1 

1  In  describing  Mr.  Chase,  Mr.  James  Russell  Lowell,  in  a  letter  from  Washington, 
November,  iS6S,  to  Leslie  Stephen,  said  :  "As  for  Mr.  Chase,  he  is  a  weak  man  with  an  im- 
posing presence,  a  most  unhappy  combination  of  which  the  world  has  not  wanted  exam- 
ples from  Saul  and  Pompey  down.  Such  men  as  infallibly  make  mischief  as  they  defraud 
expectation."  —  Life  of  James  Russell  Lpwell,  Vol.  //.,  page  7. 


112  GOLD    CERTIFICATES. 

Statement  showing  the  amount  of  notes  issued  to  the  National  Banks  from  1864 

to  i8gb  inclusive. 
Years.  Years.  Years. 

1864  $31,235,270        1875   $354,408,009         1886   $311,694,454 

1865  146,137,860  1876  332,998,386  1887  279,217,788 

1866  281,479,908  1877  317,048,872  1888  252,368,321 

1867  298,625,379  1878  324,514,284  1889  211,378,963 

1868  290,762,855  1879  329,691,697  1890  185,970,775 

1869  299,742,475  1880  344,505,427  1891  167,927,974 

1870  299,766,984       1881   355,042,675        1892   172,683,850 

1871  318,261,241         1882    358,742,034         1893    178,713,872 

1872  237,664,795         1883    356,073,281          1894    203,110,023 

1873  347,267,061  1884       339>499>883  1895       213,887,630 

1874  351,981,032  1885       318,576,711  1896       233,639,357 

GOLD    CERTIFICATES. 

On  the  3d  of  March,  1863,  an  act  was  passed  authorizing  the 
issue  of  certificates  on  deposits  of  gold  in  the  Treasury  to  the  amount 
of  $20  and  upwards.  For  several  years  the  amount  of  deposits  was 
comparatively  small.  On  the  ist  of  July,  1883,  they  reached  the 
sum  of  $74,428,580.  July  i,  1891,  they  reached  the  sum  of  $157,- 
562,979.  The  Government  derived  no  advantage  whatever  from 
these  transactions,  while  the  act  served  as  an  example  for  two  of 
the  most  disastrous  measures  ever  adopted  in  this  country,  —  the 
issue  of  the  certificates  under  the  act  of  1878,  and  the  issue  of 
notes  under  the  act  of  1890. 

DEMONETIZATION    OF    THE    SILVER   DOLLAR.      ACT   OF     1873. 

Up  to  the  close  of  the  fiscal  year  1869,  4,709,590  silver  dollars  had 
been  coined,  the  rate  averaging  about  60,000  dollars  annually.  Up 
to  that  time  $444,904,787  of  gold  had  been  coined.  Not  one  of 
the  silver  dollars  remained  in  circulation,  having  been  taken  up  for 
export  or  for  use  in  the  arts  as  fast  as  they  came  from  the  mint. 
From  1834  to  1853  they  had,  at  the  mint  ratio,  a  value  averaging 
about  3.50  per  cent,  greater  than  that  of  gold.  Minor  coins  of  silver 
had  the  same  relative  value  as  the  silver  dollar.  To  prevent  their 
exportation  was  the  purpose  of  the  act  of  1853.  Up  to  1873,  eighty- 
one  years  having  elapsed  from  the  establishment  of  the  mint,  there 
had  been  no  revision  of  the  coinage  laws,  although  we  had  as  a 
nation  become  the  great  producer  of  precious  metals,  and  had 
established  numerous  local  mints.  In  consequence,  on  the  25th  of 
April,  1870,  Mr.  Boutwell,  Secretary  of  the  Treasury,  transmitted 
to  Mr.  Sherman,  Chairman  of  the  Committee  on  Finance  of  the 
Senate,  a  bill  for  the  revision  of  the  coinage,  and  for  the  codification 


DEMONETIZATION    OF    SILVER.  113 

of  the  laws  relating  thereto.  The  bill,  prepared  by  Mr.  J.  J.  Knox, 
Deputy  Comptroller  of  the  Currency,  was  accompanied  by  a  com- 
munication from  him  as  to  the  method  and  purpose  of  its  prepara- 
tion, in  which  he  said  : 

The  method  adopted  in  the  preparation  o*  the  bill  was,  first,  to  arrange  in  as 
concise  a  form  as  possible  the  laws  now  in  existence  upon  these  subjects  (mint, 
assay  offices,  and  coinage),  with  such  additional  sections  and  suggestions  as 
seemed  valuable.  Having  accomplished  this,  the  bill,  as  thus  prepared,  was 
printed  upon  paper  with  wide  margin,  and  in  this  form  transmitted  to  the  differ- 
ent mints  and  assay  offices;  to  the  first  comptroller,  the  treasurer,  the  solicitor, 
the  first  auditor,  and  to  such  other  gentlemen  as  are  known  to  be  intelligent  upon 
metallurgical  and  numismatical  subjects,  with  the  request  that  the  printed  bill 
should  be  returned,  with  such  notes  and  suggestions  as  experience  and  education 
should  dictate.  In  this  way  the  views  of  more  than  thirty  gentlemen  who  were 
conversant  with  the  manipulation  of  metals,  the  manufacture  of  coinage,  the 
execution  of  the  present  laws  relative  thereto,  the  method  of  keeping  accounts 
and  of  making  returns  to  the  department,  have  been  obtained.  Having  received 
these  suggestions,  the  present  bill  has  been  framed,  and  is  believed  to  comprise 
within  the  compass  of  eight  or  ten  pages  of  the  Revised  Statutes  every  important 
provision  contained  in  more  than  sixty  different  enactments  upon  the  mint,  assay 
offices,  and  coinage  of  the  United  States,  which  are  the  result  of  nearly  eighty 
years  of  legislation  upon  these  subjects. 

The  coinage  of  the  silver  dollar  piece  is  discontinued  in  the  proposed  bill.  It 
is  by  law  the  dollar  unit,  and,  assuming  the  value  of  gold  to  be  fifteen  and  one- 
half  times  that  of  silver,  being  about  the  mean  ratio  for  the  past  six  years,  is 
worth  in  gold  a  premium  of  about  3  per  cent,  (its  value  being  $1.0312),  and 
intrinsically  more  than  7  per  cent,  premium  in  other  silver  coins,  its  value  thus 
being  $1.0742.  The  present  laws  consequently  authorize  both  a  gold  dollar  unit 
and  a  silver  dollar  unit,  differing  from  each  other  in  intrinsic  value.  The  present 
gold  dollar  piece  is  made  the  dollar  unit  in  the  proposed  bill,  and  the  silver 
dollar  piece  is  discontinued.  If,  however,  such  coin  is  authorized,  it  should  be 
issued  only  as  a  commercial  dollar,  not  as  a  standard  unit  of  account,  and  of  the 
exact  value  of  the  Mexican  dollar,  which  is  the  favorite  for  circulation  in  China 
and  Japan,  and  other  Oriental  countries.  (Sen.  Mis.  Doc.  No.  132,  second  ses- 
sion, 4ist  Congress,  II.) 

The  bill  drawn  by  Mr.  Knox,  which  suspended  altogether  the 
coinage  of  the  silver  dollar  as  a  unit  of  value,  became  the  basis  of 
all  action  of  Congress  upon  the  subject.  On  the  28th  of  April, 
1870,  it  was,  with  the  information  which  had  been  collected,  re- 
ferred to  the  Committee  on  Finance  of  the  Senate.  On  the  2d  of 
May  500  copies  of  the  bill  were  ordered  to  be  printed.  On 
the  i Qth  of  December,  1870,  it  was  reported  back  to  the  Senate, 


114  DEMONETIZATION    OF    SILVER. 

amended,  and  ordered  to  be  printed.  On  the  Qth  and  loth  of  Jan- 
uary, 1871,  it  was  taken  up  and  debated  at  great  length,  and  passed 
by  a  vote  of  36  to  14.  The  section  in  reference  to  silver,  identical 
with  that  in  the  bill  transmitted  to  the  Senate  by  the  Department  of 
the  Treasury,  was  as  follows  : 

That  of  the '  silver  coins  the  weight  of  the  half-dollar,  or  piece  of  fifty  cents, 
shall  be  192  grains,  and  that  of  the  quarter-dollar  and  dime  shall  be  respectively 
one-half  and  one-fifth  of  the  weight  of  said  half-dollar;  that  the  silver  coins 
issued  in  conformity  with  the  above  section  shall  be  legal  tender  in  any  one  pay- 
ment of  debts  for  all  sums  not  exceeding  $5. 

This  section  was  followed  by  another  providing  that  "  No  coins, 
either  of  gold  or  silver  or  minor  coinage,  shall  hereafter  be  issued 
from  the  mint  other  than  those  of  the  denominations,  standards, 
and  weights  herein  described." 

A  similar  section  was  contained  in  all  the  different  bills  that  were 
reported  in  either  House,  and  in  the  coinage  act  of  1873. 

On  the  25th  of  June,  1870,  the  bill  as  drawn  by  Mr.  Knox  was 
introduced  into  the  House  and  the  printing  of  500  copies  ordered. 
On  the  icth  of  January,  1871,  the  bill,  as  it  had  passed  the  Senate, 
came  to  the  House.  On  the  nth  it  was  referred  to  the  Committee 
on  Coinage,  Weights,  and  Measures.  On  the  i3th  of  January  the 
printing  of  the  bill  was  again  ordered.  On  the  25th  of  February 
the  bill  was  reported  to  the  House  with  a  substitute,  ordered  to  be 
printed,  and  recommitted.  On  the  3d  of  March,  1871,  the  Forty- 
first  Congress  expired  by  limitation,  all  unfinished  business  inaugu- 
rated by  it  falling  to  the  ground. 

On  the  Qth  of  March,  1871,  the  original  bill  was  revived  in  the 
House  of  the  Forty-second  Congress,  and  ordered  to  be  printed.  No 
further  action  was  taken  at  this  session,  which  was  a  short  one.  On 
the  Qth  of  January,  1872,  the  bill  was  again  reported  to  the  House 
by  Mr.  Kelley,  Chairman  of  the  Committee  on  Coinage,  and  debated 
at  great  length,  the  debate  occupying  nearly  two  full  days.  In  re- 
porting the  bill,  with  a  recommendation  that  it  pass,  Mr.  Kelley 
said : 

This  is  a  measure  originated  by  the  Treasury  Department,  and  growing  out  of 
the  necessities  of  the  case.  The  mint  law  of  this  country  has  never  been  re- 
vised. It  was  originally  framed  for  a  single  institution  at  Philadelphia,  and  it 
involves  many  crudities  necessarily  arising  from  the  fact  that  we  have  established 


DEMONETIZATION    OF    SILVER.  115 

several  mints  and  quite  a  number  of  assay  offices  in  different  parts  of  our  very 
much  more  widely  extended  country  than  the  law  was  originally  intended  to 
cover.  We  were  not  then  a  bullion  producing  people,  while  we  are  to-day  the 
greatest  producers  of  gold  and  silver  in  the  world.  Our  mints  are  situated  on  the 
Atlantic  and  Pacific  coasts,  and  in  the  heart  of  what  was  but  a  few  years  ago  re- 
garded as  the  inaccessible  desert  of  America. 

The  Secretary  of  the  Treasury,  discovering  the  difficulty  of  administering  the 
affairs  of  so  many  mints  and  assay  offices,  gave  the  subject  his  personal  considera- 
tion, and  then  invited  to  his  aid  some  of  the  most  experienced  gentlemen  of  the 
country  in  the  matters  of  coinage  and  the  management  of  mints,  and  directed  one 
of  the  officers  of  the  Treasury,  in  connection  with  those  gentlemen,  to  codify  the 
mint  laws. 

That  was  done,  and  the  codification,  with  such  suggestions  as  those  commis- 
sioners, as  I  may  call  them,  made,  were  submitted  to  the  two  Houses  of  Congress. 
The  Senate  took  up  the  bill  and  acted  upon  it  during  the  last  Congress,  and  sent 
it  to  this  House.  It  was  referred  to  the  Committee  on  Coinage,  Weights,  and 
Measures,  and  received  as  careful  attention  as  I  have  ever  known  a  committee  to 
bestow  on  any  measure.  The  committee,  before  proceeding  to  consider  it,  sent 
copies  of  it,  not  to  the  director  of  the  mint  alone,  but  to  the  offices  of  all  the 
mints  and  to  those  gentlemen  who  within  the  last  fifteen  or  twenty  years  have 
been  connected  with  the  mints,  and  made  reputations  which  justified  the  commit- 
tee in  attaching  importance  to  their  opinions  and  the  results  of  their  experience; 
and  thus  enlightened  from  sources  to  which  the  Secretary  had  not  applied,  the 
committee  proceeded  with  great  deliberation  to  go  over  the  bill,  not  only  section 
by  section,  but  line  by  line,  and  word  by  word. 

We  omitted,  so  far  as  I  know,  no  gentleman  in  the  country  who  has  had  pro- 
tracted official  connection  with  the  mints  or  assay  offices,  or  any  gentleman  whose 
scientific  attainments  in  connection  with  the  system  of  coinage  or  mint  usages  was 
sufficient  to  bring  him  to  our  notice.  The  committee  having  no  special  views, 
regarding  themselves  as  charged  with  a  very  important  function,  that  of  provid- 
ing for  the  integrity  of  the  coinage  and  an  economical  administration  of  the  mints 
of  the  country,  sought  information  from  all  recognized  authorities,  whether  offi- 
cial or  unofficial,  American  or  foreign. 

I  would  like  to  follow  the  example  of  England  and  make  a  wide  difference 
between  our  gold  and  silver  coins  .  .  .  and  make  the  gold  dollar  uniform 
with  the  French  system  of  weights,  taking  the  gram  as  the  unit.  (Congressional 
Globe,  second  session,  426.  Congress,  page  322.) 

The  section  in  the  bill  reported  by  Mr.  Kelley  in  reference  to  the 
coinage  of  silver  was  identical  with  that  in  the  bill  passed  by  the 
Senate. 

On  the  9th  of  February,  1872,  the  bill  was  again  reported  to  the 
House,  with  amendments,  one  of  which  provided  for  the  coinage  of 
a  base  dollar  of  384  grains,  and  ordered  to  be  printed.  On  the 
1 3th  of  February  it  was  reported  back  to  the  House  by  Mr.  Hooper, 


Il6  DEMONETIZATION    OF    SILVER. 

a  member  of  the  Committee  on  Coinage  and  made  the  special 
order  for  March  18  following.  On  April  9  the  bill  came  up  for 
consideration  in  that  body.  In  bringing  it  to  the  attention  of 
the  House,  Mr.  Hooper  gave  abstracts  of  each  one  of  the  sixty- 
nine  sections  of  which  it  was  composed,  his  remarks  filling  ten 
closely  printed  columns  of  the  Congressional  Globe.  In  reference 
to  the  coinage  of  silver,  he  said  : 

Section  16  reenacts  the  provisions  of  the  existing  laws  defining  the  silver  coins 
and  their  weights,  respectively,  except  in  relation  to  the  silver  dollar,  which  is 
reduced  in  weight  from  412^  to  384  grains,  thus  making  it  a  subsidiary  coin  in 
harmony  with  the  silver  coins  of  less  denomination  to  secure  its  concurrent  circu- 
lation with  them. 

The  silver  dollar  of  412%  grains,  by  reason  of  its  bullion  or  intrinsic  value 
being  greater  than  its  nominal  value,  long  since  ceased  to  be  a  coin  of  circulation, 
and  is  melted  by  manufacturers  of  silver  ware.  It  does  not  circulate  now  in  com- 
mercial transactions  with  any  country,  and  the  convenience  of  these  manufacturers 
in  this  respect  can  better  be  met  by  supplying  small  stamped  bars  of  the  same 
standard,  avoiding  the  useless  expense  of  coining  the  dollar  for  that  purpose. 
(Congressional  Globe,  2d  session,  42d  Congress,  page  2304.) 

Mr.  Hooper  was  followed  by  Mr.  Stoughton,  a  member  of  the 
committee,  who  said  : 

The  silver  coins  provided  for  are  the  dollar  (384  grains  troy) ,  the  half-dollar, 
quarter-dollar,  and  dime,  of  the  value  and  weight  of  one-half,  one-quarter,  and 
one-tenth  of  the  dollar,  respectively  ;  and  they  are  made  a  legal  tender  for  all 
sums  not  exceeding  $5  at  any  one  payment.  The  silver  dollar,  as  now  issued,  is 
worth  for  bullion  31/4  cents  more  than  the  gold  dollar  and  7*4  cents  more  than 
the  two  half-dollars  ;  having  a  greater  intrinsic  than  nominal  value,  it  is  certain  to 
be  withdrawn  from  circulation  whenever  we  return  to  specie  payment,  and  to  be 
used  only  for  manufacture  and  exportation  as  bullion. 

To  the  leading  features  of  the  bill  there  was  no  opposition.  To 
the  proposition  for  dropping  the  dollar  from  the  coinage,  except  in 
a  debased  form,  not  a  word  of  objection  was  raised.  The  opposi- 
tion, such  as  it  was,  was  led  by  Mr.  Potter,  a  member  from  New 
York,  who,  in  commenting  upon  the  bill,  said  : 

This  is  a  bill  of  importance.  When  it  was  before  the  House  in  the  early  part 
of  this  session,  I  took  some  objections  to  it,  which  I  am  now  inclined  to  think, 
in  view  of  all  the  circumstances,  were  not  entirely  well  founded  ;  but  after  further 
reflection  I  am  still  convinced  that  it  is  a  measure  which  it  is  hardly  worth  while 
for  us  to  adopt  at  this  time.  .  .  . 


DEMONETIZATION    OF    SILVER.  117 

This  bill  provides  for  the  making  of  changes  in  the  legal  tender  coin  of  the 
country,  and  for  substituting  as  legal  tender  coin  of  only  one  metal,  instead,  as 
heretofore,  of  two.  I  think  myself  this  would  be  a  wise  provision,  and  that  legal 
tender  coins,  except  subsidiary  coins,  should  be  of  gold  alone;  but  why  should 
we  legislate  on  this  now,  when  we  are  not  using  either  of  those  metals  as  a  circu- 
lating medium?  The  bill  provides  also  for  a  change  in  respect  to  the  weight  and 
value  of  the  silver  dollar,  which  I  think  is  a  subject  which,  when  we  come  to  re- 
quire legislation  about  it  at  all,  will  demand  at  our  hands  very  serious  consider- 
ation, and  which,  as  we  are  not  using  such  coins  for  circulation  now,  seems  at  this 
time  an  unnecessary  subject  about  which  to  legislate. 

In  reply  to  Mr.  Potter,  Mr.  Kelley  said  : 

I  wish  to  ask  the  gentleman  who  has  just  spoken  if  he  knows  of  any  govern- 
ment in  the  world  which  makes  its  subsidiary  coinage  of  full  value.  The  silver 
coin  of  England  is  ten  per  cent,  below  the  value  of  gold  coin,  and,  acting  under 
the  advice  of  experts  of  this  country  and  of  England  and  France,  Japan  has  made 
her  silver  coinage  within  the  last  year  twelve  per  cent,  below  the  value  of  gold 
coin,  and  for  the  reason  that  it  is  impossible  to  retain  the  double  standard.  The 
values  of  gold  and  silver  continually  fluctuate.  You  cannot  determine  this  year 
what  will  be  the  relative  value  of  gold  and  silver  next  year.  They  were  15  to  i 
a  short  time  ago  ;  they  are  16  to  i  now.  Hence  all  experience  has  shown  that  you 
must  have  one  standard  coin  which  shall  be  a  legal  tender  for  all  others,  and  then 
you  may  promote  your  domestic  convenience  by  having  a  subsidiary  coinage  of 
silver,  which  shall  circulate  in  all  parts  of  your  country  as  legal  tender  for 
a  limited  amount  and  be  redeemable  at  its  face  value  by  your  government. 
But,  sir,  I  again  call  the  attention  of  the  House  to  the  fact  that  the  gentlemen 
who  oppose  this  bill  insist  upon  maintaining  a  silver  dollar  worth  3%  cents 
more  than  the  gold  dollar  and  worth  7  cents  more  than  two  half-dollars,  and 
that  so  long  as  those  provisions  remain,  you  cannot  keep  silver  coin  in  the 
country. 

The  bill  now  before  the  House,  as  amended,  differed  from  that 
prepared  at  the  Department  of  the  Treasury  and  which  passed  the 
Senate  in  retaining  the  dollar  as  a  subsidiary  coin,  the  value  of  the 
same  being  reduced  from  412^  to  384  standard  grains,  it  being 
made  competent  for  the  payment  of  debts  not  exceeding  $5. 

On  the  2yth  of  May,  1872,  the  bill  was  again  brought  to  the  con- 
sideration of  the  House  by  Mr.  Hooper,  who  offered  an  amendment 
in  the  nature  of  a  substitute,  which  was  read.  The  section  in  the 
substitute  in  relation  to  silver  was  precisely  the  same  as  in  the  bill 
that  was  superseded,  the  two  differing  only  in  matters  of  detail. 
The  subject  at  this  time  had  ceased  to  attract  attention,  as  it  had  for 
more  than  two  years  been  before  Congress,  which  had  been  plied 


IlS  DEMONETIZATION    OF    SILVER. 

with  every  suggestion  and  argument  that  ingenuity  could  invent, 
and  had  been  debated  ad  nauseam  in  both  Houses.  The  bill 
passed  in  the  House  by  a  standing  vote  of  106  to  16,  the  yeas  and 
nays  not  being  demanded.  The  debate  immediately  previous  to  the 
passage  of  the  bill  was  of  the  nature  of  a  colloquy  rather  than  an 
argument.  Among  the  members  who  interposed  was  Mr.  Holman, 
from  Indiana,  who  said  : 

Before  the  question  is  taken  upon  the  question  of  the  rules  and  passing  the 
bill,  I  hope  that  the  gentleman  from  Massachusetts  will  explain  the  leading 
changes  made  by  this  bill  in  the  existing  law,  especially  in  reference  to  the  coin- 
age. It  would  seem  that  all  the  small  coinage  of  the  country  is  intended  to  be 
recoined. 

MR.  HOOPER. — This  bill  makes  no  changes  in  the  existing  law  in  that  regard. 
It  does  not  require  the  coinage  of  the  small  coins. 

The  question  related  wholly  to  the  matter  of  the  minor  coinage, 
as  did  the  reply. 

The  bill  that  passed  the  House  was,  on  the  29th  of  May,  1872, 
taken  up  by  the  Senate,  ordered  to  be  printed,  and  referred  to  the 
Committee  on  Finance.  On  the  1 6th  of  December,  1872,  Mr.  Sher- 
man, chairman  of  the  committee,  in  reporting  the  bill  back  to  the 
Senate,  said : 

This  bill  has  in  substance  passed  both  Houses.  It  was  passed  by  the  Senate  at 
the  session  of  the  last  Congress,  went  to  the  House,  and  now,  somewhat  modi- 
fied, has  passed  the  House  at  this  Congress,  so  that  the  bill  has  practically  passed 
both  Houses  of  Congress.  The  Senate  Committee  on  Finance  propose  the  modi- 
fication of  only  a  single  section  for  a  "  trade  dollar  "  of  420  grains.  As  this  is 
not  the  same  Congress  that  passed  the  bill  in  the  Senate,  I  suppose  we  shall  have 
to  go  through  the  form  of  a  full  reading. 

The  bill  was  thereupon  ordered  to  be  printed  with  the  amend- 
ments. On  the  7th  of  January,  1873,  it  was  again  reported  with  the 
amendments  and  printed  for  the  information  of  the  Senate.  On  the 
1 7th  of  January,  after  a  protracted  debate,  the  report  of  which  filled 
nineteen  closely  printed  columns  of  ^the  Globe,  the  bill  was  passed 
without  division.  In  the  course  of  the  debate  Mr.  Sherman  said  : 

This  bill  proposes  a  silver  coinage  exactly  the  same  as  the  French  and  what  are 
called  the  associated  nations  of  Europe,  who  have  adopted  the  international 
standard  of  silver  coinage;  that  is,  the  dollar  (two  half-dollars)  provided  for  in 
this  bill  is  the  precise  equivalent  of  a  five-franc  piece.  It  contains  the  same  number 


DEMONETIZATION    OF    SILVER.  119 

of  grams  of  silver,  and  we  have  adopted  the  international  gram  instead  of  the  grain 
for  the  standard  of  our  silver  coinage.  The  "  trade  dollar  "  has  been  adopted 
mainly  for  the  benefit  of  the  people  of  California  and  others  engaged  in  trade 
with  China. 

That  is  the  only  coin  measured  by  the  grain  instead  of  by  the  gram.  The  in- 
trinsic value  of  each  is  to  be  stamped  upon  the  coin.  The  Chamber  of  Commerce 
of  New  York  recommended  this  change,  and  it  has  been  adopted,  I  believe,  by 
all  the  learned  societies  who  have  given  attention  to  coinage,  and  has  been  recom- 
mended to  us,  I  believe,  as  the  general  desire.  That  is  embodied  in  these  three 
or  four  sections  of  amendment  to  make  our  silver  coinage  correspond  in  exact 
form  and  dimensions  and  shape  and  stamp  with  the  coinage  of  the  associated 
nations  of  Europe,  who  have  adopted  an  international  silver  coinage.  (Congres- 
sional Globe,  3d  session,  42d  Congress,  page  668.) 

On  the  2ist  January,  1873,  the  Senate  bill  reached  the  House, 
and  on  the  motion  of  Mr.  Hooper  was  printed  with  amendments. 
The  House  adhered  to  its  bill,  and  appointed  a  committee  of  con- 
ference. The  Senate  insisting,  a  conference  committee  was  created. 
In  the  committee  the  House  surrendered  its  proposition  for  a  base 
dollar  of  384  grains  to  be  legal  tender  in  payments  not  exceeding 
$5,  accepting  therefor  the  "trade  dollar,"  and  on  the  i2th  of  Feb- 
ruary, 1873,  tne  report  of  the  conference  committee  being  accepted 
by  both  branches,  by  the  approval  of  the  President,  the  bill  became 

a  law.     Section  1 5  in  relation  to  the  coinage  was  as  follows  : 

f 

That  the  silver  coinage  of  the  United  States  shall  be  a  trade  dollar,  a  half- 
dollar  or  5o-cent  piece,  a  quarter-dollar  or  25-cent  piece,  a  dime  or  lo-cent 
piece;  and  the  weight  of  the  trade  dollar  shall  be  420  (standard)  grains  troy; 
the  weight  of  the  half-dollar  shall  be  12  grams  (grammes)  and  one-half  of  a 
gram  (gramme) ;  the  quarter-dollar  and  the  dime  shall  be,  respectively,  one-half 
and  one-fifth  of  the  weight  of  said  half-dollar;  and  said  coins  shall  be  a  legal  ten- 
der at  their  nominal  value  for  any  amount  not  exceeding  $5  in  any  one  payment. 

Section  1 7  provided  that 

No  coins,  either  of  gold,  silver,  or  minor  coinage,  shall  hereafter  be  issued  from 
the  mint  other  than  those  denominations,  standards,  and  weights  herein  set  forth. 

Such  is  the  history  of  the  famous  Act  of  1873.  The  bill  for  this  act 
came  from  the  Secretary  of  the  Treasury  early  in  1870  with  a  com- 
munication recommending  its  passage.  In  addition  it  was  pressed 
upon  the  attention  of  Congress  in  his  annual  reports  for  1870,  1871, 
and  1872.  It  was  before  Congress  for  five  successive  sessions  of 
that  body  and  for  a  period  of  nearly  three  years.  It  was  printed  by 
its  order  thirteen  times. 


I2O  DEMONETIZATION    OF    SILVER. 

The  reports  of  the  debates  in  the  Senate  upon  the  measure  fill  66 
closely  printed  columns  of  the  Globe;  in  the  House,  78.  In  every 
bill  reported,  printed,  or  debated,  the  silver  dollar,  except  as  a 
subsidiary  coinage,  was  forbidden  in  express  terms.  The  dollar 
proposed  for  home  circulation  was  a  base  one  of  384  standard  grains, 
the  legal  competency  of  which  was  not  to  exceed  $5  in  any  one  sum. 
The  "  trade  "  dollar  for  exportation  to  the  Orient  had  a  value  at  the 
time  10  percent,  greater  than  the  gold  dollar,  its  legal  competency 
being  no  greater  than  the  proposed  debased  one. 

During  the  whole  period  in  which  this  matter  was  under  con- 
sideration the  records  of  Congress  contain  no  suggestion  that  the 
old  dollar  of  412^  grains  be  retained.  For  1870,  the  year  in  which 
the  bill  was  received  from  the  Department  of  the  Treasury,  the 
excess  in  value  of  the  silver  over  the  gold  dollar  was  2.67  per 
cent.;  in  1872,  the  measure  becoming  a  law  early  in  1873,  the 
excess  equalled  2.25  per  cent.  No  bill  that  ever  passed  Congress 
received  greater  consideration  measured  by  the  time  spent  upon  it 
and  in  the  efforts  made  to  bring  it  to  the  notice  of  the  public  and 
members  of  Congress,  and  no  public  measure  was  ever  better 
received. 

In  answer  to  the  charge  that  the  Act  of  1873  was  surreptitiously 
passed,  the  following  extracts  from  Mr.  Knox's  work,  entitled 
"  United  States  Notes,"  are  given,  he  having  had  more  to  do  with 
the  measure  than  any  other  person : 

During  the  debate  on  the  bill  of  1878  the  charge  was  repeatedly  made,  in  and 
out  of  Congress,  that  the  Act  of  1873,  discontinuing  the  free  coinage  of  the 
silver  dollar,  was  passed  surreptitiously.  This  statement  has  no  foundation  in 
fact.  The  report  of  the  writer,  who  was  then  deputy  comptroller  of  the  cur- 
rency, transmitted  to  Congress  in  1870  by  the  Secretary,  three  times  distinctly 
stated  that  the  bill  accompanying  it  proposed  to  discontinue  the  issue  of  the 
silver  dollar  piece.  Various  experts,  to  whom  it  had  been  submitted,  approved 
this  feature  of  the  bill,  and  their  opinions  were  printed  by  order  of  Congress, 
The  House  was  informed  by  its  members  of  this  provision,  and  the  bill  was 
printed  thirteen  times  by  order  of  Congress,  and  once  by  the  commissioners 
revising  the  statutes,  and  was  considered  during  five  successive  sessions. 

It  is  not  probable  that  any  act  passed  by  any  Congress  ever  received  more  care 
in  its  preparation,  or  was  ever  submitted  to  the  criticism  of  a  greater  number  of 
practical  and  scientific  experts  than  was  this  coinage  act  of  1873.  The  statement 
in  reference  to  the  surreptitious  or  inadvertent  passage  of  the  bill  was  subse- 
quently repeated  in  the  city  of  Paris  by  a  member  of  the  silver  commission. 


DEMONETIZATION    OF    SILVER. 


121 


From  1853  to  1873  the  coinage  of  silver  dollars  equalled 
$5,538,948;  of  minor  coins  of  silver  in  value  $51,598,562.  The 
coinage  of  gold  was  $540,736,349.  The  total  coinage  of  silver 
dollars  up  to  1873  was  $8,045,938;  of  minor  silver  coins 
$137,096,046.  The  total  coinage  of  gold  up  to  1873  was 
$8i6,9o5,874.1 

1  Statement  showing  the  number  of  silver  dollars  coined  from  the  establishment  of  the 
Mint  to  1873,  inclusive  : 


YEARS. 

Dollars. 

YEARS. 

Dollars. 

YEARS. 

Dollars. 

1822 

<tx2  f.,^. 

1821 

1  3ro 

1797  

7,776 

1824  . 

1798  

327,5^6 

1825  

l8C2   

1709  

423»SIS 

1826  

1800  

1827  .   . 

tgtfj. 

1801  

1828 

iScc 

1802  

1820  . 

****** 

1856 

20,OOC 

1801  . 

66  064 

1804  

I9>57C) 

1831  

I!:  :  :  :  :  : 

94,OOO 

1832 

288  "oo 

806 

lS?7 

1860 

807 

1834  

1861  .  . 

SoS 

1835 

1862 

800 

1836 

1861 

1837  •  •  '•  •  '•  - 

iS64  

31,400 

23,170 

1838  

iSlQ 

J|35  

32,900 

1813  

1840  ... 

sw 

jgg  

1814  . 

lS4I 

SfSS 

1815  

jS42  

184  618 

1869 

1816  

1870 

1844  

1871 

1818  

iftAf 

1819  

1840  .  .  . 

187-* 

1820  ... 

lSd-7 

1821  

sis 

Total 

$S  O4.C  S^S 

Statement  showing  the  yearly  average  value,  in  cents,  of  the  silver  dollar,  compared  with 
gold,  for  twenty  years,  ending  with  1872  : 


YEARS. 

Value  in 
Cents. 

YEARS. 

Value  in 
Cents. 

YEARS. 

Value  in 

Cents. 

iSc*    . 

1860          .... 

IO4  SS 

1  86 

lSC4 

1861 

o,-o 

1855    

!S62  

i860 

1856     .    .    . 

186* 

l87O 

1857    

!S64   

lS7I          .     . 

iSsS    . 

jS6; 

l872 

i8co    . 

1866 

The  average  value  of  the  silver  dollar  for  the  whole  period  was  103.63  cents. 


122  DEMONETIZATION    OF    SILVER- 

From  the  establishment  of  the  Mint  down  to  and  including  the 
Act  of  1873,  a  period  of  eighty- three  years,  whenever  the  subject 
of  the  coinage  was  considered  it  was  always  from  a  business  point 
of  view,  precisely  as  the  subject  of  weights  and  measures  had  been 
considered  that  the  same  standards  might  be  provided  for  all,  high 
and  low,  rich  and  poor.  In  the  matter  of  the  standard  of  value 
the  changes  in  the  metals  used  always  suggested  themselves.  A 
thousand  years  ago  copper  was  good  money.  Sixty  years  ago  silver 
was  good  money.  Silver  is  no  longer  good  money  except  in  the 
form  of  subsidiary  coins.  It  was  disused  precisely  as  have  been 
great  numbers  of  methods,  good  in  their  day,  but  good  for  nothing 
now.  The  changes  that  have  taken  place  in  the  standards  of  value 
form  an  interesting  chapter  in  the  progress  of  society.  In  his  report 
in  1792  upon  the  Mint,  Mr.  Hamilton  assumed  that  of  the  two 
metals  gold  was  the  more  uniform  in  value  and  for  this  reason  was 
entitled  to  the  preference  as  the  standard  of  value.  He  believed, 
however,  that  a  ratio  could  be  established  corresponding  so  nearly 
to  the  commercial  value  of  the  two  metals  as  to  render  indifferent 
the  choice  between  them,  each  at  the  time  being  equally  well  fitted 
to  serve  as  money ;  silver,  perhaps  from  its  long  use,  having  the 
preference.  He  assumed  that  the  difference  in  the  value  of  the 
coins  of  the  two,  not  exceeding  the  cost  of  exportation  estimated 
at  one-half  of  one  per  cent.,  would  not  disturb  the  relation  between 
them.  Both  metals  were,  consequently  adopted  as  money  under  the 
idea  that  the  amount  might  thereby  be  increased ;  a  very  natural 
conclusion  at  the  time.  He  was  mistaken ;  a  difference  equalling 
one-quarter  of  one  per  cent,  being  enough  to  disturb  the  equilib- 
rium sought  to  be  secured.,  either  kind  being  equally  convenient  in 
use.  As  by  the  ratio  established  gold  was  undervalued,  although 
provision  was  made  for  two  kinds,  silver  alone  remained  as  money. 
But  its  establishment  as  such  had  no  effect  to  bring  it  into  use  as 
the  ordinary  instrument  of  exchange.  It  was  the  sole  money  of  the 
country  in  1831  when  the  Select  Committee  of  the  House  of  Rep- 
resentatives recommended  the  discontinuance  of  its  coinage,  except 
in  inconsiderable  sums  in  the  form  of  small  coins,  the  total  amount 
in  the  hands  of  the  people  at  the  time  not  exceeding  $5,000,000,  or 
30  cents  per  head,  the  population  equalling  13,000,000.  The  trans- 
actions of  the  people  at  the  time  in  ratio  to  their  numbers  did  not 
equal  one-tenth  their  present  amount.  The  old  earth  roads  served, 


REMOXETIZATION    OF    SILVER.  123 

or  seemed  to  serve,  at  the  time  very  well  for  the  movement  of  their 
persons  and  property.  In  1834  came  the  first  change,  the  great 
increase  in  transactions  calling  for  a  money  having  a  higher  relative 
value  than  silver.  But  the  establishment  of  gold  as  the  money  of 
the  country  had  no  effect  to  bring  it  into  use  as  the  ordinary  instru- 
ment of  exchange.  It  had  the  effect,  however,  at  the  ratio  at  which 
it  was  coined,  of  driving  silver,  the  undervalued  metal,  out  of  the 
country  for  the  discharge  of  balances  arising  in  foreign  trade,  and  to 
such  an  extent  as  to  be  the  source  of  great  inconvenience,  an  evil 
remedied  by  the  Act  of  1853,  whereby  the  minor  coins  of  silver  were 
so  debased  that  they  could  be  exported  only  at  a  loss.  The  pur- 
pose of  the  Act  of  1873  was  to  giye  systematic  or  codified  form  to 
the  numerous  acts  on  the  statute  book,  and  a  legal  sanction  to  the 
disuse  of  the  silver  dollar  which  from  the  foundation  of  the  Govern- 
ment had,  as  money,  existed  only  in  name.  Never  was  there  a 
public  measure  in  the  history  of  the  nation  more  appropriate,  more 
thoroughly  considered,  better  understood,  or  more  cordially  accepted 
at  the  time  of  its  enactment,  than  the  Act  of  1873. 

REMONETIZATION    OF    SILVER. 

By  the  Act  of  February  28,  1878,  provision  was  made  for  the 
coinage  of  the  silver  dollar  at  the  old  ratio  of  16  to  i,  although  at 
the  time  the  commercial  ratio  between  the  two  metals  was  about  18 
to  i,  the  fall,  from  its  greatly  increased  production,  in  the  price  of 
silver  from  1873  having  been  about  12  per  cent.  The  act,  called 
the  "  Bland  Act,"  from  the  name  of  the  member  of  the  House  who 
had  the  measure  chiefly  in  charge  in  that  body,  provided  for  the 
purchase  at  its  commercial  value  for  coinage  by  the  Secretary  of  the 
Treasury  of  not  less  than  2,000,000,  nor  more  than,  4,000,000  ounces 
per  month  of  silver  bullion,  any  gain  or  seigniorage  arising  to  be 
conveyed  into  the  Treasury,  the  coins  to  be  legal  tender  at  their 
nominal  value  for  all  debts,  public  and  private.  The  act  further  pro- 
vided that  any  holder  of  the  dollars  might  deposit  the  same  with  the 
Treasurer,  or  any  Assistant  Treasurer,  of  the  United  States,  in  sums 
not  less  than  ten  dollars,  and  receive  therefor  "  certificates  "  re- 
ceivable in  the  payment  of  all  public  dues.  The  bill  first  introduced 
into  the  House  provided  for  the  unlimited  coinage  of  silver  at  the 
ratio  of  1 6  to  i.  It  passed  that  body  November  5,  1877,  D7  a  vote 
of  163  to  34.  The  bill  was  amended  in  the  Senate,  taking  very 


124  REMONETIZATION    OF    SILVER. 

nearly  the  form  in  which  it  finally  became  a  law,  passing  that  body 
by  a  vote  of  48  to  21.  As  amended,  it  passed  the  House  by  a  vote 
of  203  to  72.  The  bill  was  vetoed  by  the  President,  Mr.  Hayes,  for 
the  following  reasons  : 

If  it  is  now  proposed,  for  the  purpose  of  taking  advantage  of  the  depreciation 
of  silver  in  the  payment  of  debts,  to  coin  and  make  a  legal  tender  a  silver  dollar 
of  less  commercial  value  than  any  dollar,  whether  of  gold  or  paper,  which  is  now 
lawful  money  in  this  country,  such  a  measure,  it  will  be  hardly  questioned,  will, 
in  the  judgment  of  mankind,  be  an  act  of  bad  faith  as  to  all  debts  heretofore 
contracted.  The  silver  dollar  should  be  made  a  legal  tender  only  at  its  market 
value.  The  standard  of  value  should  not  be  changed  without  the  consent  of  both 
parties  to  the  contract.  National  promises  should  be  kept  with  unflinching 
fidelity.  There  is  no  power  to  compel  a  nation  to  pay  its  just  debts.  Its  credit 
depends  on  its  honor.  The  nation  owes  what  it  has  led  or  allowed  its  creditors 
to  expect.  I  cannot  approve  a  bill  which,  in  my  judgment,  authorizes  the  viola- 
tion of  sacred  obligations.  The  obligation  of  the  public  faith  transcends  all 
questions  of  profit  or  public  advantage.  Its  unquestionable  maintenance  is  the 
dictate  as  well  of  the  highest  expediency  as  of  the  most  necessary  duty,  and  should 
ever  be  carefully  guarded  by  the  Executive,  by  Congress,  and  by  the  people.  It 
is  my  firm  conviction  that  if  the  country  is  to  be  benefited  by  a  silver  coinage,  it 
can  be  done  only  by  the  issue  of  silver  dollars  of  full  value  which  will  defraud  no 
man.  A  currency  worth  less  than  it  purports  to  be  worth  will  in  the  end  defraud 
not  only  creditors,  but  all  who  are  engaged  in  legitimate  business,  and  none  more 
surely  than  those  who  are  dependent  on  their  daily  labor  for  their  daily  bread. 

The  bill  passed  the  House  over  the  veto  by  a  vote  of  196  to  63  ; 
and  the  Senate  by  a  vote  of  46  to  19. 

In  1870,  when  proceedings  for  the  demonetization  of  the  silver 
dollar  were  first  taken,  its  value  compared  with  gold  was  102.67 
cents.  In  1878,  when  it  was  remonetized  at  the  old  ratio  of  16  to 
i,  its  value  had  fallen  to  89  ;  the  fall  in  value  equalling  13.67  cents, 
the  percentage  of  the  fall  being  15  per  cent.  After  the  fall  had  taken 
place  the  great  crime  of  1873  was  for  the  first  time  discovered.  To 
undo  it  was  the  purpose  of  the  Bland  Act.  In  the  debates  which 
took  place  a  great  many  pictures  of  the  fraud  were  drawn,  one  of 
the  most  graphic  being  that  of  Mr.  Voorhees,  then  member  of  the 
House,  subsequently  a  member  of  the  Senate  from  the  State  of 
Indiana : 

There  is,  he  said,  a  numerous  and  powerful  class  in  our  midst  who  believe,  as 
Alexander  Hamilton  declared,  that  the  British  Government,  on  this  as  well  as  on 
other  points,  is  the  best  ever  devised  by  the  wisdom  of  man.  Those  enter- 


REMONETIZATION    OF    SILVER.  12^ 

taining  this  opinion  have  thus  far  triumphed  in  the  financial  legislation  of  the 
United  States,  and  the  time  has  now  arrived  when  their  victories  must  be  re- 
versed or  soon  this  Government  will  cease  to  be  republican  and  the  people  no 
longer  free. 

Sir,  this  theme  becomes  humiliating  to  every  honest  American  mind.  It  fills 
with  shame  every  honest  patriotic  heart.  The  naked  fact  confronts  us  at  every 
step  that  no  pledge,  however  high,  solemn,  or  binding  in  law  and  morals,  has 
been  strong  enough  to  compel  the  authors  of  our  financial  legislation  to  obey  it. 
No  sense  of  national  honor  or  good  faith  has  restrained  for  a  single  moment  the 
unbridled  avarice  of  idle  interest-bearing  capital  whenever  it  has  been  tempted, 
like  some  hungry  marauding  animal,  to  break  over  the  barriers  erected  between 
it  and  new  fields  of  spoliage  that  lie  beyond.  The  silver  dollar  came  to  us  with 
the  birth  of  our  Government.  It  was  devised  as  a  unit  of  value  by  Thomas 
Jefferson.  It  stood  as  honored  as  gold  through  every  storm  that  beat  upon  this 
Government.  It  is  associated  with  all  our  development,  our  strength,  our 
growth,  and  our  glory.  With  it  as  a  currency,  more  than  any  other,  the  picket 
lines  of  civilization  have  pushed  westward.  The  pioneer  in  the  shadow  of  the 
great  forests  or  on  the  wide  prairies  toiled  to  lay  it  by,  one  by  one,  until  the 
coveted  sum  of  one  hundred  lay  before  him.  Then  tightening  the  girths  of  his 
saddle,  he  rode  with  speed  to  the  distant  land  office,  where  the  Government  took 
his  one  hundred  silver  dollars  for  eighty  acres  of  land,  which  thenceforward 
became  that  most  blessed  spot  on  earth,  a  home  ;  a  h«me  where  trees  were 
planted,  where  children  were  born  and  grew  to  be  men  and  women,  and  they 
in  turn  went  forth  into  the  great  world,  still  to  the  west,  there  to  live  over  again 
in  labor  and  privation  the  lives  of  the  father  and  mother  left  behind. 

The  silver  dollar  is  peculiarly  the  laboring  man's  dollar,  as  far  as  he  may  desrie 
specie.  When  specie  payments  were  authorized  before  the  war  it  was  the 
favorite  currency  with  the  people.  Throughout  all  the  financial  panics  that  have 
assailed  this  country  no  man  has  been  bold  enough  to  raise  his  hand  to  strike  it 
down  ;  no  man  has  ever  dared  to  whisper  of  a  contemplated  attack  upon  it  ;  and 
when  the  hour  of  its  danger  and  destruction  drew  nigh,  when  the  I2th  day  of  Febru- 
ary, 1873,  approached,  the  day  of  doom  to  the  American  dollar,  the  dollar  of  our 
fathers,  how  silent  was  the  work  of  the  enemy !  Not  a  sound,  not  a  word,  no 
note  of  warning  to  the  American  people  that  their  favorite  coin  was  to  be  destroyed 
as  money  ;  that  the  greatest  financial  revolution  of  modern  times  was  in  contem- 
plation and  about  to  be  accomplished  against  their  highest  and  dearest  rights ! 
The  tax-payers  of  the  United  States  were  no  more  notified  or  consulted (on  this 
momentous  measure  than  the  slaves  on  a  Southern  plantation  before  the  war, 
when  their  master  made  up  his  mind  to  increase  their  task  or  to  change  them 
from  a  corn  to  a  cotton  field.  Never  since  the  foundation  of  the  Government 
has  a  law  of  such  vital  and  tremendous  import,  or  indeed  of  any  importance  at 
all,  crawled  into  our  statute  books  so  furtively  and  so  noislesely  as  this.  Its 
enactment  there  was  as  completely  unknown  to  the  people,  and  indeed  to  four- 
fifths  of  Congress  itself,  as  the  presence  of  a  burglar  in  a  house  at  midnight 
is  to  its  sleeping  inmates.  This  was  rendered  possible  partly  because  the 
clandestine  movement  was  so  utterly  unexpected,  and  partly  from  the  nature  of 
the  bill  in  which  it  occurred. 


126  REMONETIZATION    OF    SILVER. 

Sir,  in  the  entire  catalogue  of  crimes  against  human  society,  not  one  can  be 
found  so  awful  in  all  its  consequences,  both  immediate  and  remote,  as  a  Govern- 
ment commits  when  it  deliberately  destroys  the  money  of  its  own  citizens. 
Wherever  in  all  the  regions  of  time  such  measures  have  been  accomplished  the 
horrors  of  history  have  taken  place.  No  shrinkage  in  the  amount  of  money,  no 
contraction  of  the  currency  in  the  hands  of  the  people  was  ever  enforced  by  law 
to  any  considerable  extent,  except  amid  broken  lives,  ruined  hopes,  despair,  lost 
honor,  and  all  the  vices  springing  from  the  lowest  depths  of  poverty  and  human 
misery.  The  worst  ingredients  of  war,  pestilence,  and  famine  all  flow  from  the 
act  of  a  government  violently  tearing  from  the  hands  of  the  laboring  masses  the 
money  they  so  much  need.  Murder,  theft,  robbery,  prostitution,  forgery,  embezzle- 
ment, and  fraud  of  every  hue  and  mien  curse  the  land  that  is  deprived  of  a  full 
and  sufficient  circulating  medium  on  which  to  give  employment  to  its  toiling  men 
and  women. 

But  what  is  the  duty  of  the  Government  in  this  regard  ?  Is  it  true  that  the 
people  are  not  dependent  on  the  policy  of  their  Government  for  money  on  which 
to  do  business  ?  Is  it  true,  as  often  asserted,  that  in  some  way  or  other  those 
who  are  willing  to  work,  or  have  something  to  sell,  can  always  obtain  money 
regardless  of  all  financial  legislation  ?  No  greater  fallacy  than  this  was  ever  put 
forward  in  defence  of  wrong  and  injustice.  Money  is  the  creature  of  government 
both  as  to  quality  and  quantity.  It  exists  merely  by  the  assertion  of  law,  and 
in  no  other  way.  Article  I,  Section  8,  of  the  Constitution  of  the  United  States 
provides  that  "The  Congress  shall  have  power  ...  to  coin  money,  regulate 
the  value  thereof,  and  of  foreign  coin,  and  fix  the  standard  of  weights  and 
measures,"  and  Section  10  of  the  same  article  denies  all  such  powers  to  the  States, 
thus  making  Congress  the  exclusive  creator  of  money  for  the  American  people. 
Without  the  action  of  Congress  not  one  dollar  can  exist  in  the  United  States.  If 
the  article  called  money,  whether  of  gold,  silver,  or  paper,  is  necessary  at  all  in 
the  transactions  of  life,  here  alone  is  the  fountain  from  which  it  emanates.  How, 
then,  shall  this  high  power  be  exercised  ?  Shall  only  enough  lawful  money  be 
created,  in  proportion  to  the  labor  and  other  commodities  which  it  is  designed  to 
pay  for,  to  give  ten  cents  a  day  to  the  laborer,  and  ten  dollars  for  a  horse  ;  or 
shall  it  be  furnished  in  sufficient  amount  to  afford  a  just  equivalent  for  labor  and 
for  every  other  thing  of  value?  On  the  answer  to  this  question  has  depended  the 
prosperity  or  the  adversity  of  the  American  people  in  all  the  past ;  on  it  their  pres- 
ent deplorable  condition  can  alone  be  explained,  and  their  future  fate  foretold.  A 
circulating  medium  being  a  recognized  necessity  of  civilized  nations,  and  its  exist- 
ence depending  solely  on  national  authority,  that  government  which,  for  any 
reason,  fails  to  make  a  supply  adequate  to  the  business  prosperity  of  its  citizens, 
violates  that  fundamental  compact  of  duty  which  must  prevail  in  every  free  politi- 
cal commonwealth. 

Not  only,  however,  has  this  Government  failed  in  this  great  duty,  but  the 
manner  it  has  adopted  to  furnish  the  people  with  their  limited  and  insufficient 
supply  of  currency  was  conceived  and  perfected  by  the  owners  of  retired  inactive 
capital.  The  system  of  national  banking  now  in  use  is  the  most  elaborate  and 
complete  scheme  for  making  the  people  pay  tribute  to  wealth,  in  order  to  obtain  a 
circulating  medium,  ever  known  in  the  financial  history  of  the  world.  There  is 


REMCL\7ETIZATIOX    OF    SILVER.  12J 

not  a  dollar  to-day  in  the  hands  of  the  people  on  which  they  have  not  paid  a  tax 
for  the  privilege  of  having  it  put  in  circulation  by  the  Government.  The  national 
bank  is  the  middle  man  between  the  Government  and  the  people,  and  is  enor- 
mously paid  for  what  the  Government  ought  directly  to  do  itself.  According  to 
the  report  of  the  Comptroller  of  the  Currency  there  were  two  thousand  and 
eighty  national  banks  Oct.  I,  1877,  and  they  owned  in  even  numbers  $336,- 
000,000  of  government  bonds  as  the  basis  of  a  bank  note  circulation  of 
$291,000,000.  The  interest  paid  by  the  people  on  the  bonds  thus  used  to 
secure  a  currency  on  which  to  transact  their  business  amounts  to  not  less  than 
$16,000,000  per  annum.  This  is  the  tax  paid  for  the  bank-note  circulation. 
The  bondholder  has  been  made  the  banker  of  the  country,  and  he  is  banking  on 
the  interest-bearing  debt  of  the  people.  For  every  $100  of  currency  they  pay 
him  nearly  six  dollars  interest  on  the  bonds  which  secure  that  hundred.  His  ad- 
vantages, however,  only  begin  with  this  bonus  of  sixteen  millions. 

The  report  of  the  Comptroller  shows  that,  Oct.  I,  1877,  the  national  banks 
had  loans  outstanding  to  the  amount  of  eight  hundred  and  ninety-one  millions. 
No  one  will  pretend  that  these  loans  are  made  on  an  average  interest  of  less  than 
ten  per  cent.  This  makes  an  interest  amount  of  eighty-nine  millions  per  annum, 
and  this  is  an  under  rather  than  an  over  estimate.  Of  other  bonds,  stocks,  debts, 
real  estate,  specie,  currency,  clearing-house  exchanges,  United  States  certificates 
of  deposit,  and  all  other  sources,  the  property  of  the  national  banks,  at  the  above 
date,  amounted  to  something  over  five  hundred  and  fourteen  millions,  which,  at 
the  rate  of  five  per  cent.,  makes  an  additional  interest  income  of  twenty-five 
millions.  The  following  statement  will  therefore  correctly  represent  the  facts : 

Oct.  i,  1887: 

National  banks      .........  2,080 

Resources      ..........  $1,741,000,000 

Interest  on  resources  paid  by  the  people  per  annum         .          .  130,000,000 

In  return  for  the  establishment  of  this  stupendous  money  power  it  simply  acts 
as  an  agent  in  transmitting  the  currency  of  the  United  States  from  the  Treasury 
to  the  people.  Will  any  one  pretend  that  a  cheaper  and  more  equitable  mode  of 
supplying  the  country  with  a  circulating  medium  cannot  be  framed  by  our  legis- 
lative wisdom  ? 

The  power  of  money  in  the  midst  of  times  like  these  is  very  great,  but  I  am 
much  deceived  in  the  people  if  they  have  not  turned  at  last  in  defiance  and  bold 
warning  upon  their  oppressors.  They  demand  that  certain  specific  wrongs  shall 
be  redressed. 

First,  those  for  whom  I  speak  demand  the  restoration  of  the  silver  dollar 
exactly  as  it  stood  before  it  was  touched  by  the  act  of  February,  1873.  They 
desire  that  it  shall  have  unlimited  coinage,  not  fearing  that  it  will  become  too 
plenty  for  their  wants  ;  and  that  it  be  made  a  full  legal  tender,  believing  that  it 
is  as  good  now  with  which  to  pay  all  debts,  public  and  private,  as  it  was  during 
eighty-one  years  of  American  history. 

Second,  they  demand  the  repeal,  unconditionally,  of  the  act  of  Jan.  14,  1875, 
compelling  a  resumption  of  specie  payments  in  January,  1879,  holding  that  the 


128  REMOXETIZATION    OF    SILVER. 

question  of  a  return  to  a  specie  basis  for  our  currency  should  be  controlled 
entirely  by  the  business  interests  of  the  country.  They  do  not  believe  that  the 
country  should  be  dragged  through  the  depths  of  ruin,  wretchedness,  and  degra- 
dation in  order  to  reach  a  gold  standard  for  the  benefit  alone  of  the  income 
classes. 

Third,  they  demand  that  the  national  banking  system  be  removed  and  a  circu- 
lating medium  provided  by  the  Government  for  the  people,  without  taxing  them 
for  the  privilege  of  obtaining  it.  And  they  ask  that  the  amount  thus  placed  in 
circulation  shall  bear  a  reasonable  and  judicious  proportion  to  the  business  trans- 
actions and  the  population  of  the  United  States. 

Fourth,  they  demand  that  the  currency  circulated  on  the  authority  of  the 
Government  shall  be  made  a  legal  tender  in  payment  of  all  debts,  public  and 
private,  including  all  dues  to  the  Government,  well  knowing  that  it  will  then  be 
at  par  with  gold,  or  more  likely  at  a  premium  over  it. 

And  fifth,  they  demand  that  hereafter  the  financial  policy  of  the  country  shall 
be  framed  permanently  in  their  interest  ;  that  they  shall  not  be  discriminated 
against  in  future  legislation  as  in  the  past,  and  that  their  prosperity,  and  not 
mere  growth  of  incomes  to  retired  capitalists,  shall  be  the  primary  duty  of  the 
Government.  (Congressional  Record,  45th  Congress,  Vol.  I.,  330.) 

i 

The  language  of  Mr.  Voorhees  is  so  direct  and  his  meaning  so 
clearly  expressed  as  hardly  to  require  comment.  He  was  a  member 
of  the  House  for  the  whole  period  pending  the  demonetization  of 
the  silver  dollar,  having  been  elected  in  1869.  From  an  examina- 
tion of  the  Journals  he  appears  to  have  been  constant  in  his  attend- 
ance at  its  sittings.  Upon  his  table  were  laid  all  the  reports  of  the 
committees  of  the  House  and  all  the  bills  in  their  various  forms 
relating  to  the  coinage.  No  member  of  the  House  outside  the  com- 
mittee was  probably  more  familiar  with  the  progress  of  the  measure 
in  its  various  stages.  In  the  face  of  all  this  his  statement  that 
there  was  "  Not  a  sound,  not  a  word  of  warning  to  the  American 
people  that  their  favorite  coin  was  to  be  destroyed ;  that  never  from 
the  foundation  of  the  Government  did  a  law  of  such  tremendous 
import,  or  of  any  importance  at  all,  crawl  so  furtively  into  our  statute 
books  as  this  \  its  enactment  being  as  completely  unknown  to  four- 
fifths  of  Congress  as  the  presence  of  a  burglar  in  a  house  at  night  to 
its  sleeping  inmates,"  was  a  piece  of  mendacity  unmatched  in  legis- 
lative history.  The  most  painful  part  of  the  whole  businesss  is  that 
it  has  been  accepted  by  the  country  as  solemn  truth. 

"  The  silver  dollar,"  said  Mr.  Voorhees,  "  was  devised  as  a  unit  of 
value  by  Thomas  Jefferson,  and  was  associated  with  all  our  develop- 
ment, our  strength,  our  growth  and  our  glory.  It  was  always  the 


REMONETIZATION    OF    SILVER.  129 

money  of  the  picket  line  of  our  civilization.  No  sooner  was  the 
coveted  hundred  dollars  secured  than  the  possessor  rode  to  a  distant 
land  office  to  exchange  them  for  eighty  acres  of  land  to  become  his 
future  home."  The  same  process,  he  declared,  was  repeated  by 
children  and  grandchildren  till  the  mighty  wave  of  civilization  was 
carried  to  the  Pacific  Ocean.  Of  the  $8,000,000  coined  up  to 
1878  not  a  dollar  ever  entered  into  general  circulation;  not  a  dollar 
ever  crossed  the  Alleghanies  !  As  for  Jefferson  he  had  no  more  to 
do  with  devising  the  mint  ratio  of  the  silver  dollar  as  the  unit  of 
value  than  Adam.  When  in  this  country  lying  is  to  be  done  on 
a  colossal  scale  Jefferson  and  Jackson  are  always  summoned  as 
vouchers. 

"  In  the  entire  catalogue  of  crimes  against  human  society  not  one 
can  be  found  so  awful  in  its  consequences  as  when  Government 
deliberately  destroys  the  money  of  its  own  citizens."  But  not  a 
dollar  of  money  was  destroyed  by  the  Act  of  1873.  By  it  the 
obsolete  provision  for  the  coinage  of  the  silver  dollar,  never  in  cir- 
culation, was  dropped  from  the  statute  book.  The  few  that  were 
coined,  having  a  greater  commercial  than  coin  value,  were  taken  for 
use  in  the  arts,  or  for  export,  as  fast  as  they  came  from  the  mint. 
In  a  country  like  the  United  States  metallic  money  will  take  care  of 
itself.  It  may  as  well  consist  of  the  coinage  of  other  mints  as  of 
its  own.  Symbolic  money  under  free  conditions  will  also  take  care 
of  itself,  its  nominal  value  equalling  that  of  the  subjects  of  con- 
sumption ;  so  that  the  terrible  pictures  of  "  war,  pestilence,  famine, 
murder,  theft,  robbery,  prostitution,  forgery,  embezzlement,  and 
fraud  of  every  hue "  due  to  the  want  of  money  were  of  Mr. 
Voorhees'  own  creation,  or  rather  examples  of  lying  with  a  cir- 
cumstance. 

And  what  was  the  remedy?  The  creation  by  Government  of 
money,  the  quantity  and  quality  dependent  upon  its  will,  but  enough, 
so  that  instead  of  10  cents  a  day  to  labor  and  $10  for  a  horse  there 
should  be  enough  to  secure  ample  reward  for  labor,  and  a  remunera- 
tive price  for  all  the  products  of  labor.  "  When  a  Government  fails 
to  supply  an  adequate  amount  of  money  to  the  people,  it  violates," 
Mr.  Voorhees  declared,  "  the  fundamental  compact  of  duties  which 
must  prevail  in  every  free  commonwealth."  The  Government,  he 
said,  had  wholly  neglected  this  great  duty,  leaving  the  supply  of 
currency  to  the  banks,  in  consequence  of  which  they  realized 


130  REMOXETIZATION    OF    SILVER. 

$130,000,000  annually,  "simply  for  acting  as  agents  in  transferring 
the  currency  of  the  United  States  from  the  Treasury  to  the  people." 

The  remedy  was  first,  the  repeal  of  the  Act  of  1873  and  the 
unlimited  coinage  of  silver;  second,  the  repeal,  unconditionally, 
of  the  acts  for  the  resumption  of  specie  payments,  "  that  the  country 
be  no  longer  dragged  through  the  depths  of  ruin,  wretchedness  and 
degradation  in  order  to  reach  a  gold  standard  for  the  benefit  alone 
of  the  income  classes ;  third,  that  the  National  Banking  system  be 
abolished ;  fourth,  that  the  money  of  the  country,  created  and 
issued  by  the  Government,  be  legal  tender  in  the  payment  of  all 
debts,  public  and  private,  including  all  dues  to  Government,  "well 
knowing  that  such  money  will  be  at  the  par  of  gold  or  more  likely 
at  a  premium  over  it  \  "  and  finally,  "  that  the  financial  policy  of  the 
country  shall  be  framed  permanently  in  the  interests  of  the  people, 
and  that  their  prosperity,  not  the  mere  growth  of  income  to  retired 
capitalists,  should  be  the  primary  duty  of  the  Government." 

In  1877  Mr.  Voorhees  was  elected  to  the  Senate,  in  which  he 
served  for  eighteen  years  consecutively.  In  that  long  period  he 
never  omitted  an  opportunity  to  repeat  the  doctrines  of  his  great 
speech  of  1878.  In  1893,  by  regular  gradation,  being  the  oldest 
member  of  his  party  in  service  in  the  Senate,  he  was  advanced  to 
the  chairmanship  of  the  Committee  on  Finance,  a  place  of  influ- 
ence, dignity,  and  honor,  second  only  to  that  of  the  President  of  the 
United  States.  In  1893,  when  chairman  of  that  committee,  he 
made  a  speech  in  his  place  in  which,  among  other  thin  gs,  he  said  : 

Silver  is  the  money  of  the  Constitution,  and  so  specified  in  that  great  instru- 
ment, and  should  be  coined  on  the  sam  e  terms  that  gold  is  coined,  "  without  dis- 
crimination against  either  metal,  and  without  charge  for  mintage."  This  has 
been  the  doctrine  of  the  Democratic  party  from  the  days  of  Jefferson  to  the 
Chicago  Convention  of  1892,  and  it  is  the  doctrine  of  the  laboring  masses  to-day, 
irrespective  of  party,  throughout  the  United  States.  In  fact,  the  American 
people,  the  plain  working  people,  have  been  benefited  in  the  last  one  hundred 
years  far  more  by  silver  money  than  by  gold  money,  and  the  whining  cant  of 
sordid  avarice  which  we  now  hear,  that  "  gold  is  sound  money  "  and  silver  is  not, 
has  the  profound  contempt  of  every  man  familiar  with  the  history  and  the  devel- 
opments of  his  country. 

As  to  the  parity  of  the  two  metals  when  coined,  even  the  small  children  of 
finance  know  that  the  purchasing  power  of  a  dollar  is  not  fixed  by  the  quality  or 
the  quantity  of  the  material  which  composes  it,  but  by  the  law  which  makes  it  a 
legal-tender  in  the  payment  of  debts.  Much  vapid  nonsense  has  been  spoken  and 
written  in  regard  to  what  is  styled  "  fiat  money."  The  fiat  of  the  government 


REMONETIZATIOX    OF    SILVER.  13 1 

simply  means  "thus  saith  the  law,"  and  there  was  never,  in  this  or  any  gov- 
ernment on  earth,  and  never  will  be,  a  dollar,  whether  of  gold,  silver,  or  paper, 
other  than  absolutely  and  entirely  the  creature  of  the  law.  When  silver  is  coined, 
therefore,  at  the  ratio  of  16  to  I  in  gold,  or  any  other  ratio,  and  clothed  with  the 
authority  of  law,  it  has  never  failed  to  be  on  a  par  with  gold  in  its  purchasing  and 
debt-paying  power.  I  am  ready  at  any  auspicious  time  to  fight  for  the  fair  and 
honorable  restoration  of  silver  coinage  to  its  old  place  alongside  of  gold.  I  care 
but  little  for  the  attitude  of  foreign  nations  on  this  subject.  We  are  not  subject 
to  their  dictation,  and  for  their  disapproval  we  may  compensate  ourselves  with 
the  approval  of  our  own  people. 

Extracts  from  the  speeches  of  Mr.  Voorhees  are  given  at  con- 
siderable length,  but  they  should  be  read  and  reread  by  every  citi- 
zen who  would  get  an  adequate  idea  of  political  life  in  America,  in 
which  the  highest  offices  are  within  easy  reach  of  the  most  ignorant, 
malevolent,  and  revolutionary  characters,  and  of  the  dangers  to 
which  our  institutions  are  consequently  exposed. 

Among  the  members  of  the  House  who  voted  for  the  bill  of  1878 
was  the  Hon.  John  G.  Carlisle,  of  Kentucky,  afterwards  Speaker  of 
the  House  of  the  48th,  49th,  and  $oth  Congresses,  and  Secretary  of 
the  Treasury  for  the  whole  period  of  Mr.  Cleveland's  second  term. 
From  his  speech  the  following  extracts  are  given  : 

I  know  that  the  world's  stock  of  precious  metals  is  none  too  large.  Mankind 
will  be  fortunate,  indeed,  if  the  annual  production  of  gold  and  silver  coin  shall  keep 
pace  with  the  annual  increase  of  population,  commerce,  and  industries.  Accord- 
ing to  my  view  of  the  subject,  the  conspiracy  which  seems  to  have  been  formed 
here  and  in  Europe  to  destroy  by  legislation  or  otherwise  from  three-sevenths  to 
one-half  of  the  metallic  money  of  the  world  is  the  most  gigantic  crime  of  this 
or  any  other  age.  The  consummation  of  such  a  scheme  [the  disuse  of  silver]  would 
ultimately  entail  more  misery  upon  the  human  race  than  all  the  wars,  pestilences, 
and  famines  that  have  ever  occurred  in  the  history  of  the  world.  The  absolute  and 
instantaneous  destruction  of  half  the  entire  movable  property  of  the  world,  in- 
cluding houses,  ships,  railroads,  and  all  other  appliances  for  carrying  on  commerce, 
while  it  would  be  felt  more  sensibly  at  the  moment,  would  not  produce  anything 
like  the  prolonged  distress  and  disorganization  of  society  that  must  inevitably 
result  from  the  permanent  annihilation  of  one-half  the  metallic  money  of  the 
world.  With  an  ample  currency  an  industrious  and  frugal  people  will  speedily 
rebuild  the  works  of  internal  improvement  and  repair  losses  of  property,  but  no 
amount  of  industry  or  economy  on  the  part  of  the  people  can  create  money. 
IVhen  a  government  creates  it  or  authorizes  it  the  citizen  may  acquire  it,  but 
he  can  do  nothing  more. 

I  am  in  favor  of  every  practical  and  constitutional  measure  that  will  have  a 
tendency  to  defeat  or  retard  the  perpetration  of  this  great  crime,  and  I  am  also  in 


1^2  REMONETIZATION    OF    SILVER. 

favor  of  every  practical  and  constitutional  measure  that  will  aid  us  in  devising  a 
just  and  permanent  ratio  of  value  between  the  two  metals,  so  that  they  may 
circulate  side  by  side,  and  not  alternately  drive  each  other  into  exile  from  one 
country  to  another.  I  desire  to  add  only,  in  conclusion,  that  while  the  measure 
in  its  present  form  is  not  what  the  country  had  a  right  to  expect,  it  is  infinitely 
better  than  anything  the  people  have  been  able  ever  to  obtain  at  the  hands  of 
Congress  during  the  last  fifteen  years.  It  is  \hefirst  victory  won  by  the  people 
during  many  weary  years  of  warfare  with  the  consolidated  -wealth  of  this  and  other 
countries,  and  although  it  is  not  by  any  means  a  complete  triumph,  it  marks  the 
beginning  of  a  new  and  more  popular  era  in  national  legislation  ;  it  attests  a 
mighty  revolution  in  public  sentiment  as  represented  at  the  capitol.  It  places 
the  great  industrial  and  producing  masses  of  the  people  in  the  front  and  the  non- 
producers  in  the  rear.  For  fifteen  years  the  people  have  been  on  the  defensive, 
and  although  fortified  by  the  plainest  provisions  of  law  and  the  clearest  principles 
of  equity,  they  have  been  completely  driven  from  one  position  to  another  rintil  they 
have  stood  at  last  upon  the  very  verge  of  financial  ruin.  Gathering  up  all  their 
energies  for  this  struggle,  they  have  advanced,  not  very  far,  it  is  true,  but  they  have 
advanced  far  enough  to  recover  part  of  the  ground  lost  in  the  previous  conflict. 

Our  power  of  legislation  on  this  subject  will  not  be  exhausted  by  the  passage 
of  this  measure,  and  we  ought  not  to  halt  for  a  single  moment  in  our  efforts  to 
complete  the  work  only  inaugurated  by  it.  The  struggle  now  going  on  cannot 
cease  and  ought  not  to  cease  until  all  the  industrial  interests  of  the  country  are  fully 
and  finally  emancipated  from  the  heartless  domination  of  syndicates,  stock  exchanges, 
and  other  great  combinations  of  money -grabbers  in  this  country  and  in  Europe. 
(Appendix,  Congressional  Record,  2d  Session,  45th  Congress,  page  41.) 

Although  Mr.  Carlisle  voted  for  the  bill,  he  declared  himself,  in  a 
speech  delivered  on  the  occasion,  to  be  in  favor  of  unlimited  as 
against  the  free  coinage  of  silver,  in  order  that  the  Government 
might  have  the  benefit  of  the  large  gain  or  seigniorage  that  would 
result,  the  subsidiary  coinage  which  took  the  place  of  the  fractional 
currency  issued  during  the  war  being  an  example.  For  this  purpose 
31,897,371  ounces  of  silver  bullion  were  purchased  at  a  cost  of 
$34,118,203,  and  converted  into  coins  having  a  nominal  value  of 
$39,685,618,  the  gain  or  seigniorage  resulting  being  $5,567,415. 
The  same  policy,  he  declared,  should  be  pursued  in  the  coinage  of 
the  silver  dollars,  unlimited  in  amount,  but  on  account  of  the  Govern- 
ment. Free  coinage  might  be  limited  ;  that  is,  a  certain  amount 
authorized  for  any  given  period.  He  was  for  the  unlimited  coinage 
of  silver  precisely  on  the  same  terms  as  the  coinage  of  gold.  If  the 
coinage  of  silver  was  not  on  account  of  the  Government,  the  miners 
of  it,  bankers,  and  the  governments  of  the  Old  World  intent  upon 
getting  rid  of  their  stocks  of  it  would  reap  the  whole  benefit  of  the 


REMOXETIZATION    OF    SILVER.  133 

coinage,  as  the  dollars  were  to  circulate  at  their  nominal  value. 
With  him,  as  with  Mr.  Voorhees,  money  was  "Thus  saith  the  law  " 
—  or,  to  use  his  own  words,  "  when  a  government  creates  money  or 
authorizes  it  the  citizen  may  acquire  it,  but  he  can  do  nothing  more." 
But  cannot  the  citizen  create  money  by  digging  the  metal  out  of 
the  ground ;  can  he  not  lay  the  foundation  of  symbolic  money  by 
the  creation  of  merchandise  —  functions  which  governments  cannot 
or  will  not  exercise  ?  The  coinage  of  the  silver  dollars  proceeded 
according  to  his  plan.  The  seigniorage  on  the  same  from  1878  to 
the  close  of  1895  equalled  $75,219,137  conveyed  as  profit  into  the 
Treasury.  The  trouble  with  Mr.  Carlisle  was  that  the  coinage  did 
not  proceed  with  sufficient  rapidity.  The  purchase  of  $2,000,000 
per  month  was  a  small  affair,  but  it  was  great  in  being  the  first 
victory  won  by  the  people  in  their  warfare  of  fifteen  years  with  the 
"  consolidated  capital  of  this  and  other  countries."  The  value  of 
the  victory  was  the  possibility  of  the  future.  But  for  ten  of  these 
fifteen  years  of  weary  warfare  the  coinage  of  silver  was  wholly  free. 
When  it  was  free  no  one  presented  it  for  coinage,  its  bullion  being 
three  per  cent,  greater  than  its  coin  value. 

"  The  fifteen  years  of  weary  warfare  in  which  the  people  were 
driven  from  one  position  to  another  until  they  stood  on  the  very 
verge  of  financial  ruin  "  must  therefore  have  had  a  purpose  other 
than  the  coinage.  What  was  it?  Who  drove  the  people  from  one 
position  to  another  until  they  stood  at  last  upon  the  very  verge  of 
financial  ruin?  What  was  the  object  of  this  terrible  crusade  ?  How 
was  it  that  the  people  could  oppose  no  resistance  ?  In  this  country 
the  people  are  the  Government  and  the  Government  the  people. 
The  popular  branch  of  the  National  Legislature  is  chosen  once  in 
two  years.  Were  its  members  for  fifteen  years  regularly  bribed  that 
the  people  might  be  driven  to  the  very  verge  of  financial  ruin  ?  For 
capital  to  push  them  to  such  terrible  extremes  would  be  to  destroy 
its  own  value  by  destroying  the  ability  of  the  people  to  use  and  pay 
for  it.  But  in  place  of  the  terrible  scenes  described  the  period  of 
fifteen  years  at  the  end  of  which,  according  to  Mr.  Carlisle,  the  peo- 
ple stood  upon  the  very  verge  of  financial  ruin  was  one  full  of 
activity  and  hope,  one  of  the  most  progressive  and  prosperous  in  our 
history.  It  was  the  most  honorable  in  our  history,  this  repairing  in 
a  manly  way  the  waste  and  confusion  of  war,  paying  off  and  funding 
the  great  variety  of  obligations  that  had  been  created,  a  steady  ad- 


134  REMONET1ZATION    OF    SILVER. 

vance  being  made  towards  the  resumption  of  specie  payments  by  the 
retirement  of  the  legal  tender  notes.  The  fifteen  years  were  the  most 
creditable  period  in  our  history.  In  them  the  genius  of  our  people 
showed  at  its  best.  It  was  an  easy  thing  to  put  down  the  rebellion. 
It  was  a  work  of  destruction.  To  lay  deep  the  foundations  of  social 
order  so  that  every  man  was  the  same  before  the  law,  to  create  a 
prosperity  without  example,  were  far  greater  achievements.  The 
party  that  accomplished  such  results  seemed  too  firmly  entrenched 
to  be  overthrown  except  by  appeals  to  the  passions  of  the  people. 
Hence  the  terrible  pictures  drawn  of  the  "  oppressions  of  consoli- 
dated capital"  —  all  pure  inventions.  In  drawing  them  Mr.  Car- 
lisle was  only  Lucio  in  the  play.  "  He  spoke  but  according  to  the 
trick."  People  like  to  be  told  that  the  reason  why  they  have  so  little 
is  that  they  have  been  robbed,  and  who  would  be  so  likely  to  rob 
them  as  "  consolidated  capital  "  ?  What  is  "  consolidated  capital" 
but  the  fruits  of  robbery?  Possession  was  conclusive  of  the  fact. 
How  could  capital  be  consolidated  except  by  robbery  ?  The  changes 
that  Mr.  Carlisle  rung  on  "  consolidated  capital  "  were  all  the  stock 
in  trade  that  demagogues  required  to  sway  vast  masses  of  people  to 
their  will.  No  man  could  handle  these  words  with  more  dexterity 
and  effect  than  Mr.  Carlisle.  Everything  was  sure  to  go  on  well 
so  long  as  they  remained  mere  declamation.  For  a  long  time  they 
were  nothing  but  declamation.  But  it  was  inevitable  that  in  time 
invectives  so  constantly  and  fiercely  uttered  should  become  convic- 
tions on  the  part  of  the  hearers  no  longer  to  be  held  in  control. 
They  did  become  convictions,  and  the  platform  of  the  late  National 
Democratic  convention  was  the  result.  The  little  knot  of  "  consoli- 
dated capitalists,"  including  Mr.  Cleveland,  who  so  long  controlled 
the  Democracy,  and  capitalists,  up  to  a  certain  point,  are  always  the 
obvious  and  natural  leaders  of  it,  suddenly  found  themselves  com- 
pletely unhorsed.  Their  mouths,  if  opened  by  way  of  remonstrance, 
were  crammed  with  their  own  utterances.  Never  before  in  the  his- 
tory of  this  or  any  other  country  was  there  such  a  spectacle  of  men 
high  in  office  "hoist  by  their  own  petard."  When  hoist  they  had 
nothing  whatever  to  oppose  to  the  intense  conviction  they  had  created. 
Not  a  single  conservative  influence  was  left  to  check  the  headlong 
career  of  the  rank  and  file  of  the  party  so  long  docile  in  their  hands, 
but  which  now  proposed  to  carry  out  to  the  letter  the  revolutionary 
doctrines  which  had  been  so  long  and  so  persistently  taught.  Fortu- 


REMONETIZATION    OF    SILVER.  135 

nately  for  the  moment,  from  the  apprehension  created,  a  terrible 
catastrophe  was  averted.  Was  the  escape  an  accident,  or  will  the 
foes  of  "  consolidated  capital,"  from  the  teachings  of  their  old  leaders, 
gather  up  their  forces  and  finally  carry  the  day  ?  Whatever  the  event, 
we  have  well  learned  that  utterances  like  those  of  Mr.  Carlisle,  to 
which  great  emphasis  was  given  by  the  exalted  position  which  he 
subsequently  held,  have  already  exacted  a  terrible  but  appropriate 
penalty.  Whether  as  a  people  we  can  profit  by  the  lesson  we  have 
received  remains  to  be  seen. 

Few  things  in  history  are  more  remarkable  than  the  manner  in 
which  the  advocates  of  cheap  money  became  their  own  dupes. 
They  demanded  that  Government  create  money,  so  that,  to  use  the 
graphic  language  of  Mr.  Voorhees,  "more  than  10  cents  should  be 
paid  for  a  day's  labor,  and  more  than  $10  for  a  horse."  With  Mr. 
Carlisle,  as  with  Mr.  Voorhees,  money  was  "  thus  saith  the  law  !  " 
Now  a  "  thousand  millions  "  is  as  easily  placed  on  the  statute-book  as 
a  "  hundred  millions."  The  small  victory  of  two  million  ounces 
per  month  became  in  twelve  years  one  of  transcendent  importance 
in  the  purchase  for  coinage  of  291,272,018  ounces,  at  the  cost  of 
$308,279,260,  the  equivalent  of  about  400,000,000  dollars.  In  1890 
a  still  greater  victory  was  achieved  in  the  purchase  for  coinage  of 
4,500,000  ounces  per  month.  Under  this  act  168,674,682  ounces, 
at  the  cost  of  $155,931,002,  were  purchased.  Under  the  two  acts 
459,946,701  ounces,  the  equivalent  of  about  550,000,000  dollars, 
were  purchased,  at  the  cost  of  $464,2 10,262.  At  the  remonetization 
of  silver  in  1878  Mr.  Carlisle  would  undoubtedly  have  been  glad  to 
compromise  upon  one-half  such  sum.  From  1878  to  the  present 
time  the  value  of  silver  has  steadily  declined,  so  that  the  dollar  is 
worth  only  50  cents  in  the  place  of  89  cents  when  the  first  victory 
of  the  people  was  achieved,  which  with  Mr.  Carlisle  was  a  matter  of 
the  greatest  exultation.  At  the  close  of  his  official  career  as  the 
Secretary  of  the  Treasury  he  proclaimed  to  the  world  that  not  a 
dollar  of  their  rightful  and  proper  money  was  to  go  into  the  hands 
of  the  down-trodden  people  but  at  the  value  of  gold  !  He  was  at 
last  compelled  to  obey  a  law  higher  than  his  own  —  to  join  "  the 
great  conspiracy  of  syndicates,  stock-jobbers,  and  other  great  com- 
binations of  capital  in  this  country  and  in  Europe  "  for  the  robbery 
and  oppression  of  the  poor  !  He  started  as  their  champion  to  lead 


136  REMONETIZATION    OF    SILVER. 

them  into  the  promised  land.  He  led  them  into  the  wilderness, 
there  to  leave  them  a  prey  to  their  ignorance  and  fears,  without  a 
single  hint  from  him  of  any  way  of  escape.  As  for  the  people  whom 
he  long  championed  they  are  still  not  only  without  their  promised 
money,  but  the  process  by  which  it  was  to  be  reached,  the  debase- 
ment of  the  currency,  has  created  such  apprehension  and  disturbance 
that  the  employment  as  well  as  the  wages  of  labor  have  been  greatly 
reduced,  so  that  widespread  actual  has  taken  the  place  of  the  alleged 
suffering  that  led  to  the  crusade  for  cheap  money.  This  is  not  all. 
But  for  the  acts  of  1878  and  1890  the  vast  accumulations  of  silver 
now  piled  up,  an  idle  mass,  in  the  Treasury  would,  as  capital,  have 
been  made  the  basis  of  production,  giving  greatly  increased  employ- 
ment and  higher  wages  to  labor,  while  the  amount  of  money  in  cir- 
culation would  have  been  much  greater  than  its  present  volume, 
measuring  the  value  of  the  increased  subjects  of  distribution,  sym- 
bolic money  being  in  ratio  to  their  amount  or  value.  Under  normal 
conditions,  from  the  improvements  coming  constantly  into  use,  the 
increase  in  the  productive  capacity  of  our  people  has  been  in  a  ratio 
threefold  greater  than  that  of  their  numbers.  For  a  long  time  past, 
from  the  apprehension  created  by  our  abnormal  monetary  system, 
the  increase  of  their  products  has  hardly  kept  pace  with  that  of  their 
numbers.  Not  only  has  not  a  single  purpose  of  its  advocates  ever 
been  realized,  but,  left  to  themselves,  they  would  never  establish 
silver  as  their  own  money. 

The  most  pronounced  instinct  of  the  race  is  for  good  money,  as  it 
constitutes  its  reserves,  awaiting  opportunity  or  necessity  for  their 
use.  When  people  receive  money  the  thought  uppermost  in  their 
minds  is  not  the  payment  of  debts,  but  its  exchangeable  value  in 
the  purchase  of  other  kinds  of  merchandise,  that  money  having  the 
highest  relative  and  the  greatest  uniformity  of  value  always  having 
the  preference.  In  all  history,  where  metallic  money  has  been  de- 
based from  wear  or  other  causes,  the  most  valued  coins  will  always 
be  hoarded,  the  least  valuable  alone  remaining  in  circulation.  It  is 
not  for  ordinary  use,  but  for  a  single  purpose  —  for  the  payment  of 
debts  —  that  the  coinage  of  silver  is  demanded.  That  purpose 
accomplished,  debased  silver  money  would  never  voluntarily  be  taken 
back  as  money  by  the  parties  paying  it  out,  nor  by  those  producing 
it,  from  the  danger  and  inconvenience  attending  its  use ;  a  far  better 
metallic  money  being  provided  —  gold  —  as  the  standard  of  value, 


REMONETIZATION    OF    SILVER.  137 

symbolic  money  being  the  ordinary  instrument  of  exchange.  Silver 
can  no  more  again  become  the  money  of  any  class  than  can  earthways 
again  become  with  any  the  instruments  of  transportation,  on  a 
large  scale,  of  persons  or  property.  In  this  matter  self-interest  will 
always  be  the  imperative  rule  or  guide.  Debts  paid,  gold,  as  standard 
money,  will  be  as  much  insisted  upon  by  day  laborers  as  by  the  com- 
mercial classes.  Its  superiority  as  money  over  silver  will  be  as  much 
understood  by  the  former  as  by  the  latter.  The  aversion  against 
silver  will,  in  fact,  be  much  stronger  with  the  laboring  than  with  the 
commercial  classes,  as  the  latter,  constantly  dealing  in  it  as  merchan- 
dise, will  have  none  of  the  prejudices  naturally  felt  by  those  wholly 
rejecting  it  as  money.  The  laboring  classes  will  accept  or  lay  by, 
as  money,  only  that  kind  about  which  no  apprehension  can  arise. 
The  graphic  pictures  drawn  by  the  opponents  of  silver  of  the  disas- 
ters that  will  be  inflicted  by  its  coinage  upon  the  laboring  classes, 
their  choice  left  free,  exist  in  imagination  alone.  In  this  matter  the 
laboring  classes  will  prove  as  competent  to  take  care  of  themselves 
as  capitalists.  In  contracts  to  be  made  no  one  will  agree  to  pay  or 
accept  silver.  No  law  can  be  made  to  compel  its  use  or  accept- 
ance except  for  debts  already  contracted. 

It  is  not  the  final  event  that  is  the  matter  of  chief  concern.  It  is 
impossible  that  the  nation  should  ever  voluntarily  come  or  long  re- 
main upon  a  silver  basis.  But  we  have,  say,  $500,000,000  of  silver, 
full  legal  tender,  the  great  mass  lying  idle  in  the  Treasury.  Sup- 
pose the  Government  should  find  itself  unable  to  take  in  the  silver 
certificates  and  notes  in  gold?  Their  market  value  would  fall  to 
that  of  their  constituent,  which  with  such  fall  could  be  reached  at 
something  like  its  real  value,  to  be  used  in  the  payment  of  debts  at 
its  nominal  value.  The  scene  that  would  result  would  beggar  de- 
scription, every  institution,  including  the  Government,  and  every  in- 
dividual, being  involved  in  the  common  disaster,  —  that  debts  may 
be  paid  at  one-half  the  value  at  which  they  were  contracted. 

Mr.  Sherman's  part  in  the  maintenance  in  circulation  of  the  notes 
of  the  United  States  has  already  been  shown.  In  his  Report  for 
1877,  summarized  in  his  "Forty  Years,"  he  also  considered  at  great 
length  the  matter  of  the  coinage  : 

It  had  been  the  careful  study  of  statesmen  for  many  years  to  secure  a  bi-metal- 
lic  currency  not  subject  to  the  changes  of  market  value,  and  so  adjusted  that  both 
kinds  could  be  kept  in  circulation  together,  not  alternating  with  each  other.  The 


138  REMONETIZATION    OF    SILVER. 

growing  tendency  had  been  to  adopt,  for  coins,  the  principle  of  "  redeema- 
bility  "  applied  to  different  forms  of  paper  money.  By  limiting  tokens,  silver 
and  paper  money,  to  the  amount  needed  for  business,  and  promptly  receiving  or 
redeeming  all  that  might  at  any  time  be  in  excess,  all  these  forms  of  money  could 
be  kept  in  circulation,  in  large  amounts,  at  par  with  gold.  In  this  way,  tokens 
of  inferior  intrinsic  value  were  readily  circulated,  and  did  not  depreciate  below 
the  paper  money  into  which  they  were  convertible.  The  fractional  coin  then  in 
circulation,  though  the  silver  of  which  it  was  composed  was  of  less  market  value 
than  the  paper  money,  passed  readily  among  all  classes  of  people  and  answered 
all  the  purposes  for  which  it  was  designed.  And  so  the  silver  dollar,  if  restored 
to  our  coinage,  would  greatly  add  to  the  convenience  of  the  people.  .  .  . 

I  did  not  agree  with  the  President  in  his  veto  of  the  bill,  for  the  radical 
changes  made  in  its  terms  in  the  Senate  had  greatly  changed  its  effect  and  tenor. 
The  provisions  authorizing  the  Secretary  of  the  Treasury  to  purchase  not  less  than 
$2,000,000  worth  of  silver  bullion  per  month,  at  market  price,  and  to  coin  it  into 
dollars,  placed  the  silver  dollars  upon  the  same  basis  as  the  subsidiary  coins, 
except  that  the  dollar  contained  a  greater  number  of  grains  of  silver  than  a  dollar 
of  the  subsidiary  coins,  and  was  a  legal  tender  for  all  debts,  without  limit  as  to 
amount.  The  provision  that  the  gain  or  seigniorage  arising  from  the  coinage 
should  be  accounted  for  and  paid  into  the  treasury,  as  under  the  existing  laws 
relative  to  subsidiary  coinage,  seemed  to  remove  all  serious  objections  to  the 
measure. 

I  believed  that  all  the  beneficial  results  hoped  for  from  a  liberal  issue  of  silver 
coin  could  be  secured  by  issuing  this  coin,  in  pursuance  of  the  general  policy  of 
the  act  of  1853,  in  exchange  for  United  States  notes  coined  from  bullion  pur- 
chased in  the  open  market  by  the  United  States,  and  by  maintaining  it  by 
redemption,  or  otherwise,  at  par  with  gold  coin.  It  could  be  made  a  legal  tender 
for  such  sums  and  on  such  contracts  as  would  secure  to  it  the  most  general  circu- 
lation. It  could  be  easily  redeemed  in  United  States  notes  and  gold  coin,  and 
only  reissued  when  demanded  for  public  convenience.  If  the  essential  quality  of 
redeemability  given  to  the  United  States  notes,  bank-bills,  tokens,  fractional 
coins,  and  currency  maintained  them  at  par,  how  much  easier  it  would  be  to 
maintain  the  silver  dollar,  of  intrinsic  market  value  nearly  equal  to  gold,  at  par 
with  gold  coin,  by  giving  to  it  the  like  quality  of  redeemability.  ("  Forty  Years," 
Vol.  II.,  Chapters  I.  and  II.) 

Instead  of  its  having  been,  as  asserted  by  the  Secretary,  "  the 
careful  study  of  statesmen  for  many  years  to  secure  a  bi-metallic 
currency  so  adjusted  that  both  kinds  could  be  kept  in  circulation 
together,"  the  study,  if  the  word  may  be  used,  for  many  years  has, 
at  least  so  far  as  this  country  is  concerned,  been  in  an  exactly 
opposite  direction.  The  exchanges  being  effected  by  means  of 
symbolic  money,  metallic  money  could  be  well  left  to  take  care  of 
itself,  the  coins  of  other  nations  being  as  valuable  as  our  own  and 
circulating  as  freely.  The  kind  of  metallic  money  is  relative  to  the 


REMONETIZATIOX    OF    SILVER.  139 

condition  of  the  people.  At  one  time,  and  within  historic  periods, 
copper  was  good  money ;  at  another  silver ;  now  gold  ;  one  by  regular 
gradation  giving  place  to  the  other.  At  the  formation  of  our  system 
silver  was  alike  the  money  of  tradition  and  convenience.  From  the 
limited  transactions  taking  place,  it  was  as  well  fitted  as  gold  to  serve 
as  reserves  of  the  issuers  of  symbolic  money.  It  necessarily  became 
such  because,  by  the  ratio  established  by  Hamilton,  gold  was  under- 
valued. His  was  the  first  and  only  attempt  ever  made  in  this 
country  to  reconcile  the  value  of  the  two  metals.  He  assumed  that 
this  was  possible  and,  if  so,  desirable,  that  the  amount  of  money  .might 
be  increased.  He  had  little  idea  that  both  kinds  were,  for  ordinary 
use,  to  be  superceded  by  symbolic  money.  So  completely  did  silver 
become  discharged  from  ordinary  use,  gold  being  wholly  so,  that  the 
amount  of  the  former  in  the  hands  of  the  people,  so  late  as  1831,  all 
in  the  form  of  subsidiary  coins,  did  not  exceed  $5,000,000.  In 
1834,  from  the  greatly  increased  transactions  taking  place,  it  was  for 
the  first  time  seen  that  gold  had  become  the  more  convenient  metal 
to  serve  as  the  reserves  of  the  banks.  To  bring  it  into  use  an  act 
was  passed  whereby  it  was  purposely  overvalued  to  the  extent  of 
about  three  per  cent.  It  consequently  became  the  reserves  of  the 
issuers  of  symbolic  money.  As  there  was  no  complaint  that  silver, 
when  serving  as  reserves,  was  not  in  sufficient  abundance,  so  there 
was  no  complaint  that  gold  was  not  sufficiently  abundant  when  it 
became  the  standard  money  of  the  country.  It  was  well  understood 
that  when  "  money  was  scarce  "  it  was  for  the  reason  that  merchan- 
dise was  scarce,  and  for  no  other.  The  second  change  came  by  the 
act  of  1853,  by  which  the  subsidiary  coinage  was  purposely  debased 
to  prevent  its  exportation.  The  purpose  was  a  wide  distinction  between 
the  two  metals,  not  their  reconciliation.  Nothing  was  further  from 
the  purpose  of  the  act  of  1878.  The  cry  then  was  not  for  good 
money,  but  cheap  money.  Provision  for  the  reconciliation  of  the 
two  would  have  been  fatal,  as  it  would  have  wholly  defeated  the 
object  aimed  at. 

The  Secretary  "  did  not  agree  with  the  President  in  his  veto  of  the 
bill"  (of  1878),  which  provided  among  other  things  that  all  debts, 
public  and  private,  could  be  paid  in  silver,  and  that  after,  from 
excess  of  production  and  its  disuse  among  the  continental  nations, 
it  had  fallen,  in  a  comparatively  short  period,  13  cents  in  value.  The 
causes  producing  the  fall  still  remained  in  full  force ;  a  fall  which 


140 


REMONETIZATION    OF    SILVER. 


continued  until  a  dollar  has  now  only  half  the  value  of  one  of  1873. 
He  approved  the  act,  "  as  the  existing  laws  relative  to  the  subsidiary 
coinage  seemed  to  remove  all  objections  to  the  measure,"  —  and  for 
the  reason  "  that  all  the  beneficial  results  that  could  be  hoped  for 
from  a  liberal  use  of  silver  could  be  secured  by  issues  of  this  coin  in 
pursuance  of  the  general  policy  of  1853."  That  act  provided  that 
"  such  silver  coins  [issued  by  virtue  of  it]  shall  be  paid  out  at  the 
mint  in  exchange  for  gold  coins  at  par."  There  could  be  no  excess^ 
as  the  coins,  unless  the  supply  was  short,  would  not  be  demanded  in 
exchange  for  gold.  Their  value  was  supported  by  being  accepted  in 
the  payment  of  the  revenues  at  the  par  of  gold.  No  other  provisions 
in  their  support  were  ever  made  than  those  described.  No  other 
was  required.  To  make  the  two  cases  parallel,  the  silver  coined  under 
the  act  of  1878  could  not  have  left  the  mint  except  in  exchange  for 
an  equal  nominal  amount  of  gold.  To  make  them  parallel  the 
coinage  under  the  act  of  1853  should  have  been  legal  tender  for 
unlimited  amounts.  It  was  legal  tender  only  for  sums  not  exceed- 
ing five  dollars.  To  render  them  parallel  the  holders  of  silver  coin 
issued  under  the  act  of  1853  should  have  had  the  right  to  convert 
them  into  the  notes  of  the  Government,  payable,  like  those  of  1878, 
in  gold.  Instead  of  being  parallel  the  two  acts  antagonized  each  other 
in  every  particular.  If  under  the  act  of  1878  silver  had  been  coined 
at  a  much  lower  rate,  its  value,  could  it  have  found  adequate  use, 
such  as  the  payment  of  the  revenues,  would  have  been  maintained  at 
the  par  of  gold,  provided  the  amount  did  not  exceed,  say,  $50,000,000, 
the  revenues  equalling,  say,  $1,250,000  daily.  Use  may  give  value 
to  silver  as  to  exchequer  bills  bearing  no  interest,  and  receivable 
only  in  the  payment  of  the  revenues.  But  silver,  from  the  incon- 
venience of  its  use,  will  never  have  any  other  employment  than  that 
of  subsidiary  coin,  there  being  an  adequate  supply  of  other  and  better 
kinds  of  money. 

"  By  limiting  tokens,  silver  and  paper  money,  to  the  amount 
needed  for  business,  and  promptly  receiving  or  redeeming  all  that 
might  at  times  be  in  excess,  all  these  forms  of  money  could,"  said  the 
Secretary,  "  be  kept  in  circulation  in  large  amounts  at  par  with  gold." 
How  is  the  excess  of  such  money  to  be  determined  ?  With  him  by 
the  amount  returning  for  redemption.  But  a  money  of  Government 
so  long  as  confidence  is  maintained  will  be  returned  for  conversion 
into  gold  only  to  meet  balances  arising  in  the  foreign  or  domestic 


REMONETIZATION    OF    SILVER.  14! 

trade  of  the  country,  the  only  purpose  for  which  on  any  considerable 
scale  gold  is  now  used.  It  may  be  laid  down  as  an  axiom  that  in 
affairs  in  a  country  like  the  United  States  no  other  money  but  paper 
will  be  used  as  the  ordinary  instrument  of  exchange.  No  other  can 
be  afforded.  Suspension  of  specie  payments,  and  there  have  been 
several  in  the  United  States,  have  not  had  the  slightest  effect  to 
bring  metallic  money  into  general  use.  Paper,  whatever  the  kind, 
still  remained  the  money  of  the  people,  its  value  being  measured  by 
the  standard  of  gold.  The  public  from  their  reduced  means,  alike 
the  cause  and  result  of  suspension  of  specie  payment,  can  far  less 
afford  to  use  metallic  money  after  than  before.  They  use  what 
they  have,  whatever  the  value  placed  upon  it.  The  kind  of  money  is 
shown  by  the  results,  which,  in  a  country  like  the  United  States,  may 
be  long  deferred.  The  degree  of  excess  is  to  be  inferred  from  its 
quality,  not  quantity.  There  can  be  no  excess  of  metallic  money 
in  the  form  of  gold.  There  can  be  no  excess  of  paper  money  sym- 
bolizing merchandise  at  the  value  of  gold.  These  two  are  the  only 
kinds  of  money  proper  for  use.  Government  money  is  always  in 
excess,  for  the  reason  that  no  adequate  provision  will  ever  be  made 
therefor.  The  acceptance  by  a  people  of  the  money  of  Government 
or  banks,  or  that  it  remains  a  long  time  in  circulation,  is  no  evidence 
that  it  is  properly  issued.  The  old  Continental  money  was  eagerly 
welcomed.  It  seemed  just  the  kind  to  fill  the  channels  of  circula- 
tion. For  a  time  no  money  seemed  more  opportune  or  valuable.  It 
was  so  opportune  and  valuable  that  it  circulated  for  nearly  two  years 
at  the  par  of  gold.  So  well  was  it  received  that  a  provision  of  ten 
times  the  amount  issued  would  not  have  been  regarded  as  excessive. 
Not  a  dollar  ever  issued  left  the  channels  of  circulation  until,  after 
working  infinite  mischief,  every  dollar  was  repudiated.  The  accept- 
ance of  a  money,  or  that  it  remains  in  the  channels  of  circulation, 
is  no  test  whatever  of  its  quality  or  value.  At  the  outset  bad  may  be 
as  well  received  as  good  money. 

Continental  money  had  no  more  right  to  be  when  it  was  issued 
than  when  it  was  repudiated.  Its  quality  should  have  been  as  pal- 
pable when  it  was  issued  as  when  it  was  repudiated.  Our  money  of 
government  notes  is  precisely  the  same  in  kind.  It  has  produced 
precisely  the  same  effect  as  the  Continental  currency,  but  from  the 
greatly  increased  means  of  our  people  it  has  not  yet  been  repudiated, 
nor  worked  their  ruin.  It  is  in  excess  not  only  from  not  being  a 


142  REMONET1ZATIOX    OF    SILVER. 

symbol  of  capital,  but  for  the  reason  that  the  money  of  commerce  in 
countries  like  the  United  States  measures,  as  it  always  will  measure, 
the  means  of  the  people.  The  addition  to  this  of  the  money  of 
Government  is  pure  inflation.  The  great  evil  of  government  money 
is  that  it  will  not  be  presented  for  redemption  in  gold,  so  habituated 
have  our  people  become  to  the  use  of  paper  money,  except  for 
balances  arising,  from  its  use,  in  the  foreign  or  domestic  trade  of  the 
country,  and  then  only  by  those  who  are  connected  with  such  trade, 
or  their  representatives.  As  our  Government  is  the  great  issuer  of 
paper  money  it  is  first  called  upon  to  supply  the  demand  for  coin, 
and  distrust  naturally  arises  as  to  its  ability  to  meet  the  vast  amount 
of  its  notes  outstanding  liable  at  any  moment  to  be  presented  for 
payment.  It  is  this  distrust  that  shows  the  nature  of  a  currency  of 
government  notes,  not  the  circulation  obtained  for  them.  This  dis- 
trust when  the  amount  is  excessive  can  be  allayed  only  by  the  removal 
of  the  cause.  In  the  place  of  Mr.  Sherman's  fallacious  test  of  good 
money,  the  true  test  is  the  degree  of  provision  made  previous  to  its 
issue  for  its  retirement.  The  test  of  his  currency  is  the  mischief  it 
has  wrought  —  a  mischief  which  should  have  been  foreseen  and 
avoided  by  any  one  familiar  with  the  history  of  the  country  or  of  the 
attributes  and  laws  of  money. 

As  debased  subsidiary  coins,  from  their  use,  remain  in  circulation, 
the  Secretary  inferred  that  debased  silver  dollars  would  enter  into 
and  remain  in  circulation  at  their  par  value.  But  by  no  process, 
from  the  inconvenience  of  their  use,  can  they  be  brought  into  or 
remain  in  circulation,  better  and  more  convenient  kinds  of  money 
being  provided. 

It  is  a  sufficient  reply  to  the  Secretary  to  state  that  no  provision 
was  ever  made  by  law  for  the  maintenance  of  the  value  of  silver 
dollars  at  the  par  of  gold ;  that  no  such  order  was  ever  given  by  him 
in  his  official  capacity,  or  by  any  successor  in  office,  for  the  reason 
that  no  such  purpose  was  ever  intended,  and  that  not  a  cent  of 
money  has  ever  been  expended  therefor.  The  incoherence  which 
characterized  him  arose  from  his  assumption  that  value,  either  intrinsic 
or  representative,  is  no  necessary  attribute  of  money.  It  is  from 
such  an  assumption  that  all  the  disasters  in  the  matter  of  the  cur- 
rency, and  they  have  exceeded  almost  the  power  of  language  to 
describe,  have  arisen. 

Mr.  Sherman's  ideas  as  to  coinage  of  silver  were  further  illustrated 


REMOXETIZATION    OF    SILVER.  143 

in  his  conference,  March  9,  1878,  with  the  Committee  on  Finance  of 
the  Senate.  To  a  question  proposed  by  Mr.  Morrell,  the  Chairman, 
"  What  effect  has  the  silver  bill  [of  1878]  had,  or  is  it  likely  to 
have,  upon  resumption  of  specie  payments?"  he  replied: 

I  shall  have  to  confess  that  I  have  been  mistaken  myself.  Now,  as  to  the 
silver  bill,  I  have  watched  its  operation  very  closely.  I  think  the  silver  bill  has 
had  some  adverse  effects,  and  it  has  had  some  favorable  effects,  on  the  question 
of  resumption.  It  has  undoubtedly  stopped  refunding  operations.  Since  the 
agitation  of  the  silver  question,  I  have  not  been  able  largely  to  sell  bonds, 
although  I  have  made  every  effort  to  do  so.  ...  Now,  another  adverse 
effect  the  silver  bill  has  had  is  to  stop  the  accumulation  of  gold  coin.  Since  the 
ist  of  January  we  have  accumulated  no  coin,  except  for  coin  certificates,  and 
except  the  balance  of  revenue  over  expenditure. 

Another  effect  that  the  silver  bill  has  had  is  to  cause  the  return  of  our  bonds 
from  Europe.  Although  the  movement  of  our  bonds  in  this  direction  has  been 
pretty  steady  for  more  than  a  year,  yet  it  is  latterly  largely  increased  ;  how  much 
I  am  not  prepared  to  say. 

On  the  other  hand,  I  will  give  the  favorable  effects.  In  the  first  place,  the 
silver  bill  satisfied  a  strong  public  demand  for  bi-metallic  money,  and  that  demand 
is,  no  doubt,  largely  sectional.  No  doubt  there  is  a  difference  of  opinion 
between  the  West  and  South  and  the  East  on  this  subject,  but  the  desire  for 
remonetization  of  silver  was  almost  universal.  In  a  government  like  ours  it  is 
always  good  to  obey  the  popular  current;  and  that  has  been  done,  I  think,  by  the 
passage  of  the  silver  bill.  Resumption  can  be  maintained  more  easily  upon  a 
double  standard  than  upon  a  single  standard.  The  bulky  character  of  silver 
would  prevent  payments  in  it,  while  gold,  being  more  portable,  would  be  more 
freely  demanded,  and  I  think  resumption  can  be  maintained  with  a  less  amount  of 
silver  than  of  gold  alone. 

SENATOR  BAYARD.  —  You  are  speaking  of  resumption  upon  the  basis  of  silver  ? 
or  of  silver  and  gold  ? 

SECRETARY  SHERMAN.  — Yes,  sir  ;  I  think  it  can  be  maintained  better  upon  a 
bi-metallic  or  alternative  standard  than  upon  a  single  one,  and  with  less  accumu- 
lation of  gold.  In  this  way  remonetization  of  silver  would  rather  aid  resumption. 

SENATOR  BAYARD.  —  You  speak  of  resumption  upon  a  bi-metallic  basis  being 
easier.  Do  you  make  that  proposition  irrespective  of  the  readjustment  of  the 
relative  values  of  the  two  metals  as  we  have  declared  them  ? 

SECRETARY  SHERMAN. — I  think  so.  Our  mere  right  to  pay  in  silver  would 
deter  a  great  many  people  from  presenting  notes  for  redemption  who  would 
readily  do  so  if  they  could  get  the  lighter  and  more  portable  coin  in  exchange. 
Besides,  gold  coin  can  be  exported,  while  silver  coin  could  not  be  exported 
because  its  market  value  is  less  than  its  coin  value. 

SENATOR  BAYARD.  —  I  understand  that  it  works  practically  very  well.  So  long 
as  the  silver  is  less  in  value  than  the  paper,  you  will  have  no  trouble  in  redeeming 
your  paper.  When  a  paper  dollar  is  worth  98  cents,  nobody  is  going  to  take  it 
to  the  Treasury  and  get  92  cents  in  silver  ;  but  what  are  you  to  do  as  your  silver 


144  REMOXETIZATIOX    OF    SILVER. 

coin  is  minted  ?  By  the  1st  of  July  next  or  the  1st  of  January  next  you  have 
eighteen  or  twenty  millions  of  silver  dollars  which  are  in  circulation  and  payable 
for  duties,  and  how  long  do  you  suppose  this  short  supply  of  silver  and  your  con- 
trol of  it  by  your  coinage  will  keep  it  equivalent  to  gold  —  when  one  is  worth 
ten  cents  less  than  the  other  ? 

SECRETARY  SHERMAN.  — Just  so  long  as  it  can  be  used  for  anything  that  gold 
is  used  for.  It  will  be  worth  in  this  country  the  par  of  gold  until  it  becomes  so 
abundant  and  bulky  that  people  will  become  tired  of  carrying  it  about  ;  but  in 
oiir  country  that  can  be  avoided  by  depositing  it  for  coin  certificates. 

"  Resumption  of  specie  payments,"  according  to  the  Secretary, 
"  could  be  maintained  better  upon  an  alternate  standard  than  upon  a 
single  one,  and  with  less  accumulation  of  gold,"  for  the  reason  that 
from  the  inconvenience  of  its  use  from  its  bulky  character,  and  from 
the  fact  that  silver  could  not  from  its  debasement  be  exported,  the 
holders  of  the  obligations  of  the  Government,  knowing  that  they 
could  be  paid  in  it,  would  not  present  them  for  payment.  If  an 
impertinent  fellow  demanded  gold,  all  that  the  Secretary  had  to  do 
was  to  hurl  a  junk  of  silver  at  his  head,  displaying  a  plenty  of  such 
missiles  in  reserve.  Such  was  the  Secretary's  resumption  as  pro- 
vided by  the  act  of  1875,  supplemented,  according  to  him,  by  that 
of  1878.  The  act  of  1878  created  a  new  form  of  money,  legal 
tender  in  the  payment  of  all  debts,  public  and  private.  It  was  for 
him  to  execute  the  law.  The  idea  that  at  the  time  there  was  any- 
thing behind  the  silver  dollar  or  the  certificates  issued  there- 
for never  entered  his  head ;  nor  that  there  was  anything  wrong 
or  out  of  the  way  in  paying  all  the  obligations  of  the  Govern- 
ment in  silver,  its  value  having  in  a  short  period  fallen  13  per 
cent.  New  light  came  with  the  apprehension  subsequently  created 
in  view  of  the  enormous  amount  of  the  notes  of  the  Government 
for  which  no  adequate  provision  was  made.  That  apprehension 
was  allayed,  or  sought  to  be  allayed,  by  a  recitation  in  the  act 
of  1890  "that  it  is  the  policy  of  the  United  States  to  maintain  the 
two  metals  on  a  parity  with  each  other  upon  the  present  legal  ratio." 
"Obeying  the  popular  current,"  the  Secretary  assumed,  in  his  dis- 
cussion of  the  subject  in  his  "  Forty  Years,"  that  such  was  the  policy 
of  the  Government  by  the  act  of  1878  —  that  to  the  coinage  under  it 
"the  general  policy  of  the  act  of  1853,  maintaining  silver  at  the  par 
of  gold,  by  redemption  or  otherwise,  applied."  All  this  was  an  after- 
thought to  meet  the  change  in  the  "popular  current,"  now  demand- 
ing that  silver  be  maintained  at  the  par  of  gold. 


REMOXETIZATIOX    OF    SILVER.  145 

The  act  of  1853  made  no  provisions  for  the  maintenance  of  the 
coins  issued  other  than  those  described.  The  recitation  in  that  of 
1890  of  a  purpose  to  maintain  the  parity  of  the  two  metals  no  more 
gave  the  Secretary  of  the  Treasury  the  power  to  maintain  the  coin- 
age of  1878  at  the  par  of  gold  than  would  a  recitation  on  the  part  of 
Congress  of  the  desirability  of  such  a  step  authorize  him  to  purchase 
the  navies  of  the  world  !  It  is  not  easy  at  first  sight  to  get  at  his 
meaning.  A  little  patience,  however,  will  suffice.  He  believed 
that  money  circulated  from  the  necessity  of  a  medium  of  exchange ; 
that  silver  would  circulate  at  the  par  of  gold  if  not  in  excess; 
if  excessive,  the  objection  on  the  score  of  inconvenience  could 
be  overcome  by  the  ues  of  notes  in  its  place.  As  the  value  of  the 
silver  dollars  could,  by  the  use  of  certificates  issued  against  them,  be 
maintained  at  the  par  of  gold,  it  was  no  hardship  to  creditors  to  be 
compelled  to  accept  them  at  the  par  of  gold.  At  any  rate,  in  advo- 
cating the  coinage  of  silver  he  was  only  "obeying  the  popular 
current,"  an  obedience  that,  from  the  era  of  Jackson,  has  been  the 
curse  of  American  political  life.  We  have  had  ample  experience  of 
the  disastrous  consequences  which  have  resulted  from  following  the 
"popular  current."  It  was  the  "popular  current"  which  main- 
tained slavery  so  long  in  power  ;  the  penalty  paid  being  half  a 
million  of  lives,  the  waste  of  more  than  five  thousand  millions  of 
property,  and  the  razing  of  one-half  the  country  by  fire  and  sword. 
It  was  the  "  popular  current  "  that  overthrew  the  most  perfect  mone- 
tary system  ever  established,  the  "popular  current"  declaring  it  to 
be  the  instrument  in  the  hands  of  the  rich  for  the  impoverishment 
and  enslavement  of  the  poor ;  the  penalty  paid,  as  Mr.  Buchanan 
declared,  being  "  a  succession  of  extravagant  inflations  and  ruinous 
contractions,  so  that  in  the  midst  of  unsurpassed  plenty  in  all  the 
products  of  agriculture,  and  in  all  the  elements  of  national  wealth, 
we  find  our  manufactures  suspended,  our  public  works  retarded,  our 
private  enterprises  of  different  kinds  abandoned,  and  thousands  of 
useful  laborers  thrown  out  of  employment  and  reduced  to  want,"  — 
a  picture  as  true  to-day  as  when  it  was  drawn  forty  years  ago,  so 
incapable  are  our  people  of  correcting  any  great  wrong  when  once 
committed  to  it.  It  was  the  "  popular  current "  that  enacted  the 
law  of  1878,  one  of  the  most  infamous  ever  placed  upon  the  statute- 
book,  and  one  which,  if  we  ever  recover  our  senses  as  a  people,  will 
fix  an  indelible  stain  on  those  enacting  or  approving  it ;  an  act  to 


146  ACT    OF    1890. 

which,  more  than  to  any  other,  the  terrible  disasters  that  have 
recently  been  suffered,  and  what  is  still  worse  the  doubt  and  irreso- 
lution which  prevail,  and  from  which  there  seems  to  be  no  way  of 
escape,  are  due.  The  danger  of  following  the  "  popular  current  "  is 
that  the  persistent  noise  and  bluster  of  a  very  small  faction  may  be 
the  "popular  current,"  and  drown  the  mild  remonstrances  of  the 
well-to-do  and  self-respecting  classes,  who  may  make  no  sign  except 
in  cases  of  supreme  emergency ;  a  little  knot  or  faction  of  tur- 
bulent or  revolutionary  characters,  the  only  "popular  current  "  dis- 
playing itself,  carrying  the  day.  In  the  close  calculation  of  politi- 
cal chances  great  concessions  are  made  to  States  insignificant  in 
numbers,  with  industries  or  interests  peculiar  to  themselves  which 
may  decidedly  antagonize  those  of  the  great  mass  of  the  people. 
It  is  one  of  the  infelicities  of  our  system  that  a  State  like  that  of 
Nevada,  with  40,000  people,  counts  as  much  in  one  branch  of  the 
National  Legislature  as  that  of  New  York,  with  6,000,000.  From  the 
experience  of  the  past  we  may  count  upon  one  thing  as  certain  — 
that  by  following  the  "  popular  current "  we  shall  soon  witness  the 
end  of  our  "  Model  Republic." 

The  mischief  of  the  act  of  1878  resulted  from  the  subsequent  as- 
sumed undertaking  by  the  Government  to  maintain  the  value  of  the 
coins  under  it  at  the  par  of  gold.  Unlimited  coinage  at  the  time, 
legal  tender  for  all  who  consented  thereto,  would  have  been  most 
opportune  as  an  example,  as  the  act  would  have  remained  a  dead 
letter,  the  coinage  being  rejected  as  it  is  to-day.  But  for  the  notes 
and  certificates,  the  legal  tender  clause,  which  would  have  been 
availed  of,  would,  from  the  iniquity  and  folly  of  the  act,  have  led  to 
a  speedy  repeal. 

ACT  OF  1890. 

The  greater  the  amount  of  government  money,  whatever  the 
form,  the  greater  the  impoverishment  of  the  people  and  louder  the 
clamor  for  more  as  the  only  source  of  relief.  To  meet  it,  the  act 
of  July  14,  1890,  superseding  that  of  1878,  provided  for  the  pur- 
chase monthly  of  4,500,000  ounces  of  silver  by  an  issue  of  notes  to 
serve  as  money  of  the  Government  equal  to  the  cost.  The  bill 
was  framed  in  committee  of  conference  of  the  two  Houses,  the  Sen- 
ate being  largely  in  favor  of  unlimited,  the  House  insisting  upon  a 
limited,  coinage.  Mr.  Sherman,  at  the  time  in  the  Senate,  was  a 


ACT    OF    1890.  147 

member  of  the  committee,  and  from  his  instrumentality  in  framing 
it  the  act  has  since  gone  by  his  name.  It  recited  that  "  upon 
the  demand  of  any  holder  of  the  treasury  notes  herein  provided  for, 
the  Secretary  of  the  Treasury  shall,  under  such  regulations  as  he  may 
prescribe,  redeem  such  notes  in  gold  or  silver  coin  at  his  discretion, 
it  being  the  established  policy  of  the  United  States  to  maintain  the  two 
metals  in  parity  with  each  other  upon  their  legal  ratio,  or  upon  such 
ratio  as  may  be  provided  by  law"  It  is  by  virtue  of  this  recitation 
alone  that  the  dollars  coined  under  the  act  of  1878  were  held  to  be 
exchangeable  for  gold.  From  the  power  conferred  upon  the  Secre- 
tary he  undoubtedly  had  the  right  to  take  in  the  notes  issued  under 
the  act  of  1890  by  the  use  of  any  money  in  the  Treasury  not  other- 
wise appropriated,  but  not  by  borrowing  money  as  provided  by  the 
act  of  1875  for  the  resumption  and  maintenance  of  specie  payment, 
that  act  being  restricted  to  a  single  purpose.  An  important  and 
unprecedented  feature  of  the  act  of  1890  was  the  provision,  in  a 
time  of  profound  peace,  that  the  notes  should  be  legal  tender  in  all 
payments,  public  and  private,  and  might  be  held  by  the  banks  as 
their  reserves.  Its  purpose  was  set  forth  by  Mr.  Sherman  in  a 
speech  delivered  by  him  in  the  Senate,  June  5,  1890,  in  which  he 
said  : 

To  know  what  measures  ought  to  be  adopted  we  should  have  a  clear  con- 
ception of  what  we  wish  to  accomplish.  I  believe  a  majority  of  the  Senate  desire, 
first,  to  provide  an  increase  of  money  to  meet  the  increasing  wants  of  our  rapidly 
growing  country  and  population,  and  to  supply  the  reduction  in  our  circulation 
caused  by  the  retiring  of  National  Bank  notes  ;  second,  to  increase  the  market 
value  of  silver,  not  only  in  the  United  States,  but  in  the  world,  in  the  belief  that 
this  is  essential  to  the  success  of  any  measure  proposed,  and  in  the  hope  that  our 
efforts  will  advance  silver  to  its  legal  ratio  with  gold,  and  induce  the  great  com- 
mercial nations  to  join  with  us  in  maintaining  the  legal  parity  of  the  two  metals, 
or  in  agreeing  with  us  in  a  new  ratio  of  their  relative  value  ;  and,  third,  to  se- 
cure a  genuine  bi-metallic  standard,  one  that  will  not  demonetize  gold,  or  cause 
it  to  be  hoarded  or  exported,  but  that  will  establish  both  gold  and  silver  as 
standards  of  value,  not  only  in  the  United  States,  but  among  all  the  civilized 
nations  of  the  world. 

The  first  purpose  of  Mr.  Sherman  was  "  to  provide  an  increase 
of  money  to  meet  the  increasing  wants  of  our  rapidly  growing 
country  and  population,  and  to  supply  the  reduction  in  our  circu- 
lation caused  by  the  retirement  of  National  Bank  notes."  How 
is  metallic  money  provided  ?  —  by  mining  the  metal  or  obtaining 


148  ACT    OF     1890. 

it  in  exchange  for  other  kinds  of  merchandise  from  other  coun- 
tries, methods  certainly  not  functions  of  Government.  Another 
kind  of  money  are  symbols  of  merchandise,  these  serving,  in  its 
purchase,  the  office  of  metallic  money,  having  a  great  advantage 
over  the  former  in  the  convenience  of  their  use,  an  additional  one 
resulting  from  the  discharge  of  capital  from  the  exchanges.  The 
two  are  the  only  kinds  of  money  which  have  any  place  in  affairs  — 
one  being  capital,  the  other  the  symbol  of  capital.  Mr.  Sherman 
proposed  a  third  —  debt  of  Government  without  interest,  and 
without  any  provision  for  its  redemption  in  gold  —  alike  "  to  meet  the 
increasing  wants  of  an  increasing  population,"  as  well  as  to  fill  the 
vacuum  created  by  the  retirement  of  the  notes  of  the  banks,  the 
amount  of  these  being  reduced  from  $356,060,348  in  1882  to  $179,- 
449,958  in  1890.  Without  further  evidence  than  what  has  been  ad- 
duced it  is  submitted  that  "  government  debt  without  interest,"  for  the 
conversion  of  which  into  coin  no  adequate  provision  is  made,  is  not 
the  kind  of  money  about  which  a  government  should  busy  itself. 
That  government  money  of  the  kind  described  was  with  Mr.  Sher- 
man to  take  the  place  of  the  note  circulation  withdrawn  by  the 
banks,  shows  that  he  had  no  proper  conception  of  the  subject  which 
he  assumed  so  gravely  to  discuss.  The  notes  of  the  banks  were 
secured  by  the  bonds  of  the  Government,  having  a  higher  market 
value  than  their  nominal  amount,  and,  in  addition,  by  the  undertak- 
ing of  the  borrowers  to  return  them  to  the  issuers  without  any  inter- 
position on  their  part.  This  statement  shows  the  radical  difference 
between  the  two  kinds  of  money,  a  difference  which  Mr.  Sherman 
seemed  wholly  unable  to  master. 

The  great  wrong,  or  crime,  rather,  of  the  act  of  1890  was  the  legal 
tender  attribute  with  which  its  notes  were  clothed,  not  an  additional 
dollar  being  provided  for  their  retirement.  As  they  had  in  the  dis- 
charge of  contracts  the  potency  of  gold,  it  was  a  logical  sequence 
that  they  should  constitute,  as  was  provided,  the  reserves  of  the 
National  Banks,  the  liabilities  of  which  equalled  $1,900,000,000. 
If  reserves  equalling  25  per  cent,  of  their  immediate  liabilities 
were  to  be  provided,  the  legal  tender  notes  of  the  Government,  in- 
cluding those  of  1890,  equalling  $500,000,000,  were  ample  therefor 
without  the  provision  of  a  dollar  in  gold.  As  by  the  act  of  1890 
it  became  the  duty  of  the  Government  to  make  good  the  dollars 
coined  under  the  act  of  1878,  as  well  as  the  certificates  issued  against 


ACT    OF    1890.  149 

the  same,  its  own  immediate  liabilities,  payable  in  gold,  were  in- 
creased to  $830,000,000.  To  the  above  sums  were  to  be  added  the 
issues,  $700,000,000,  of  State  Banks,  bankers,  and  trust  companies, 
serving  as  money,  the  aggregate  being  $3,400,000,000,  all  resting 
possibly  upon  an  assumed  provision  of  $100,000,000  in  gold,  the 
reserves  of  the  Government,  such  sum  by  drafts  upon  it  being,  at 
one  time,  in  1894,  reduced  to  the  pitiful  sum  of  $41,348,181.  Such 
was  the  financial  structure  which  Mr.  Sherman  above  all  others  con- 
tributed to  rear,  to  the  support  of  which  he  seems  to  be  fully  com- 
mitted. 

Another  purpose  of  Mr.  Sherman  was  to  increase  the  value  of 
silver  in  order,  in  concert  with  other  nations,  to  maintain  the  two 
metals  at  their  legal  parity.  Why  should  we  wish  to  increase  the 
value  of  silver  in  order  to  maintain  the  parity  of  two  metals,  one  of 
which  is  never  again  to  be  used  as  money  ?  As  silver  is  never  again 
to  be  used  as  money,  the  lower  the  price,  from  reduced  cost,  the 
greater  the  general  welfare,  from  the  wider  use  in  the  arts  of  so 
valuable  an  article.  With  the  same  sense  Mr.  Sherman  might  call 
for  a  convention  of  nations  to  restore  the  price  of  copper  to  the  old 
figures  in  order  to  bring  it  into  use  as  money  and  maintain  its 
"  parity  with  gold." 

The  third  purpose  of  Mr.  Sherman,  which  will  be  considered 
further  on,  was  the  establishment  of  "  Bi-metallism." 

The  effect  of  the  large  increase,  due  to  the  act  of  1890,  of  Gov- 
ernment notes,  for  the  retirement  of  which  no  provision  was  made, 
which  largely  served  as  the  reserves  of  banks,  and  were  greatly 
instrumental  in  drawing  gold  from  the  treasury,  was  to  increase  the 
apprehension  which  had  prevailed,  and  which  became  so  intense  as 
to  lead  to  the  act  of  Nov.  i,  1893,  for  the  repeal  of  the  preceding 
act.  This  act  failed  to  bring  the  expected  relief,  from  the  following 
recitation  it  contained  : 

It  is  hereby  declared  to  be  the  policy  of  the  United  States  to  continue  the  use 
of  both  gold  and  silver  as  standard  money,  and  to  coin  both  gold  and  silver  into 
money  of  equal  intrinsic  and  exchangeable  value,  such  equality  to  be  secured 
through  international  agreement,  or  by  such  safeguards  of  legislation  as  will  in- 
sure the  maintenance  of  the  parity  in  value  of  the  coins  of  the  two  metals  and  the 
equal  power  of  every  dollar  at  all  times  in  the  markets  and  in  the  payment  of 
debts.  And  it  is  further  declared  that  the  efforts  of  the  Government  should  be 


150  THE    LATE    ADMINISTRATION. 

steadily  directed  to  the  establishment  of  such  a  safe  system  of  bi-metallism  as  will 
maintain  at  all  times  the  equal  power  of  every  dollar  coined  or  issued  by  the 
United  States  in  the  markets  and  in  the  payment  of  debts. 

"The  chief  merit  of  this  law,"  said  Mr.  Sherman,  "was  that  it  suspended  the 
peremptory  coinage  of  the  silver  purchased  under  it  into  silver  dollars  which 
could  not  be  circulated,  but  were  hoarded  in  the  Treasury  at  great  cost  and  in- 
convenience. It  required  the  monthly  purchase  of  a  greater  amount  of  silver  than 
before,  but  that  could  be  held  in  the  form  of  bullion,  and  could  be  paid  for  by 
treasury  notes  equal  in  amount  to  the  cost  of  the  bullion,  the  whole  of  which 
was  held  in  the  Treasury  as  security  for  the  payment  of  the  notes.  If  silver 
bullion  did  not  decline  in  market  value  it  could,  if  necessary,  be  coined  without 
loss,  and  thus  the  parity  of  the  notes  with  gold  could  be  readily  maintained 
according  to  the  declared  policy  of  the  law. 

As  Mr.  Voorhees,  Chairman  of  the  Committee  of  Finance  of  the 
Senate,  reported  the  bill  for  the  act  of  1893,  which  was  supported 
by  great  numbers  of  members  of  Congress  as  pronounced  silver  men 
as  himself,  the  conclusion  is  irresistible  that  it  was  from  the  conviction 
that  its  repeal  was  to  be  speedily  followed  by  one  for  unlimited  coin- 
age of  silver. 

For  the  repeal  of  the  act  of  1890  the  vote  in  the  Senate  was  43 
to  32,  and  in  the  House  194  to  94.  Mr.  Sherman,  then  member 
of  the  Senate,  voted  for  the  repeal. 

THE    LATE    ADMINISTRATION. 

The  situation,  already  sufficiently  set  forth,  may  again  be  briefly 
stated  —  $830,000,000  of  Government  notes,  all  payable  in  gold, 
not  one  of  which  came  into  being  as  an  instrument  for  the  distribu- 
tion of  merchandise,  the  only  reserves  provided  for  their  conversion 
into  coin  being  the  assumed  amount  of  $160,000,000,  the  amount 
at  times  falling  below  one-half  that  sum.  Of  the  whole  amount  some 
$500,000,000  are  legal  tender  in  the  payment  of  all  debts,  public 
and  private,  and  serve  as  the  reserves  of  the  National  Banks,  the 
issues  of  which,  with  those  of  the  State  Banks,  bankers,  and  trust 
companies,  made  an  aggregate  of  $3,400,000,000.  The  gravity  of 
the  situation  is  greatly  increased  by  the  general  assumption  that  no 
substantial  reform  is  required ;  that  all  that  is  wanted  is  the  main- 
tenance of  the  status  in  quo  ;  that  no  danger  is  to  be  feared  so  long 
as  the  amount  of  government  money  is  not  increased.  There  is 
little  recognition  of  the  disturbing  and  disastrous  effect  in  affairs  of 
the  issue,  on  a  colossal  scale,  of  debt  to  serve  as  money.  So  long 


THE    LATE    ADMINISTRATION.  15! 

as  there  is  none  no  measure  of  reform  will  ever  be  entered  upon. 
Such  was  the  position  of  the  late  administration ;  such  that  of  the 
present  one.  That  of  the  former  was  well  set  forth  by  the  late  Sec- 
retary, Mr.  Carlisle,  in  a  circular  letter  addressed  by  him  to  Mr. 
J.  J.  Helm,  of  Kentucky,  under  date  of  Sept.  15,  1896  : 

Your  letter  asking  how  the  silver  dollars,  which  contain  a  quantity  of  bullion 
commercially  worth  only  about  53  cents  each,  are  maintained  at  a  parity  with 
gold,  notwithstanding  the  fact  that  the  Government  does  not  directly  redeem 
them,  or  the  certificates  issued  upon  them,  in  gold,  is  received,  and  as  a  .great 
many  inquiries  upon  the  same  subject  are  addressed  to  me  daily  from  different 
parts  of  the  country,  which  it  is  impracticable  to  answer  in  detail,  I  will  take  ad- 
vantage of  your  favor  to  answer  them  all  at  once  : 

All  the  standard  silver  dollars  issued  from  the  mint  since  the  passage  of 
the  act  of  1878,  now  amounting  to  more  than  $433,000,000,  have  been  coined 
on  public  account  from  bullion  purchased  by  the  Government,  and  are  legal  tender 
in  payment  of  all  debts,  public  and  private,  without  regard  to  the  amount,  except 
when  otherwise  expressly  stipulated  in  the  contract  between  the  parties. 

The  Government  has  made  no  discrimination  whatever  between  the  coins  of 
the  two  metals,  gold  having  been  paid  on  its  coin  obligations  when  gold  was  de- 
manded and  silver  having  been  paid  when  silver  was  demanded. 

Under  this  policy  the  coinage  has  been  so  limited  by  law  and  the  policy  of 
the  Treasury  Department  that  the  amount  coined  has  not  become  so  great  as  to 
drive  the  more  valuable  coin,  gold,  out  of  use,  and  thus  destroy  the  basis  of  our 
monetary  system  ;  and  so  long  as  the  two  metals  are  of  unequal  commercial 
value,  at  the  ratio  established  by  law,  this  limitation  upon  the  coinage  is,  in  my 
opinion,  absolutely  essential  to  the  maintenance  of  their  parity  in  effecting 
exchanges. 

If  the  limitation  were  removed,  confidence  in  the  ability  of  the  Government 
to  preserve  equality  in  the  exchangeable  value  of  the  coins  would  be  destroyed, 
and  the  parity  would  be  lost,  long  before  the  amount  of  silver  coinage  had  become 
really  excessive. 

With  free  and  unlimited  coinage  of  silver  on  account  of  private  individuals 
and  corporations,  the  Government  would  be  under  no  moral  obligation  to  maintain 
the  parity,  and,  moreover,  it  would  be  unable  to  do  so,  because  the  volume  of 
overvalued  silver  forced  into  the  circulation  by  a  legal  tender  provision  would 
soon  expel  gold  from  the  country,  or  put  such  a  premium  upon  it  that  it  would  be 
impossible  to  procure  and  hold  in  the  Treasury  a  sufficient  amount  to  provide  for 
the  redemption  of  silver  on  presentation. 

In  order  to  maintain  the  parity  under  such  conditions,  the  Government 
would  be  compelled  from  the  beginning  to  exchange  gold  for  silver  dollars,  or 
their  paper  representatives,  whenever  demanded,  just  as  it  now  exchanges  gold 
for  its  own  notes  when  demanded  ;  and  as  the  coinage  of  silver  dollars  would 
be  unlimited,  and  therefore  constantly  increasing,  a  point  would  soon  be  reached 
where  it  would  be  impossible  to  continue  the  process  of  redemption. 

The   implied  obligation  of   the    Government  to    preserve  the  value  of   the 


152  THE    LATE    ADMINISTRATION. 

money  which  it  coins  from  its  own  bullion  and  for  its  own  use,  and  which  it 
forces  the  citizens  to  receive  in  exchange  for  their  property  and  services,  has  been 
supplemented  by  two  statutory  declarations,  which  substantially  pledge  the  public 
faith  to  the  maintenance  of  that  policy. 

The  act  of  July  14,  1890,  after  providing  that  the  Secretary  of  the  Treasury 
should,  under  such  regulations  as  he  might  prescribe,  redeem  the  treasury  notes 
issued  in  the  purchase  of  silver  bullion,  in  gold  or  silver  coin  at  his  discretion, 
declares  that  it  is  "the  established  policy  of  the  United  States  to  maintain  the 
two  metals  on  a  parity  with  each  other  upon  the  present  legal  ratio,  or  such  ratio 
as  may  be  provided  by  law,"  and  the  act  of  Nov.  i,  1893,  again  declares  it  to  be 
"  the  policy  of  the  United  States  to  continue  the  use  of  both  gold  and  silver  as 
standard  money,  and  to  coin  both  gold  and  silver  into  money  of  equal  intrinsic 
and  exchangeable  value,  such  equality  to  be  secured  through  international  agree- 
ment or  by  such  safeguards  of  legislation  as  will  insure  the  maintenance  of  the 
parity  of  value  of  the  coins  of  the  two  metals  and  the  equal  power  of  every  dollar 
at  all  times  in  the  markets  and  in  the  payment  of  debts." 

It  is  not  doubted  that  whatever  can  be  lawfully  done  to  maintain  equality 
in  the  exchangeable  value  of  the  two  metals  will  be  done  whenever  it  becomes 
necessary,  and  although  silver  dollars  and  silver  certificates  have  not,  up  to  the 
present  time,  been  received  in  exchange  for  gold,  yet,  if  the  time  shall  ever  come 
when  the  parity  cannot  be  otherwise  maintained,  such  exchanges  will  be  made. 

It  is  the  duty  of  the  Secretary  of  the  Treasury,  and  of  all  other  public  officials, 
to  execute  in  good  faith  the  policy  declared  by  Congress,  and  whenever  he  shall 
be  satisfied  that  the  silver  dollar  cannot  be  kept  equal  in  purchasing  power  with 
the  gold  dollar  except  by  receiving  it  in  exchange  for  the  gold  dollar  when  such 
exchange  be  demanded,  it  will  be  his  duty  to  adopt  that  course. 

But  if  our  present  policy  is  adhered  to,  and  the  coinage  is  kept  within  reason- 
able limits,  the  means  heretofore  employed  for  the  maintenance  of  the  parity  will 
doubtless  be  found  sufficient  in  the  future,  and  our  silver  dollars  and  silver  cer- 
tificates will  continue  to  circulate  at  par  with  gold,  thus  enabling  the  people  to 
use  both  metals  instead  of  one  only,  as  would  be  the  case  if  the  parity  were 
destroyed  by  free  coinage. 

Under  the  acts  of  1878  and  1890  more  than  433,000,000  of 
silver  dollars,  said  the  Secretary,  had  been  coined,  a  large  amount 
of  silver  bullion  purchased  under  the  act  of  1890  remaining 
in  the  Treasury  as  bullion  and  represented  by  notes.  At  the 
time  of  his  circular  letter  the  Government  made  no  difference 
whatever  between  the  coins  of  the  two  metals.  As  the  coinage 
of  silver  had  been  on  account  of  the  Government,  the  amount 
had  been  so  limited  that  it  had  not,  the  Secretary  declared, 
driven  the  more  valuable  metal,  gold,  out  of  circulation,  thus 
destroying  the  basis  of  our  monetary  system,  the  parity  of  the 
two  metals  being  maintained.  Thrown  open  to  the  public,  the 


THE    LATE    ADMINISTRATION.  ^53 

Government  would  be  under  no  obligation  to,  nor  could  it,  main- 
tain such  parity.  The  effect  would  be  that  the  least  valuable  would 
drive  the  most  valuable  out  of  circulation,  or  raise  its  price  so 
high  as  to  put  it  beyond  the  reach  of  the  Government.  The 
implied  duty  to  preserve  the  parity  of  all  money  issued  by  it  was, 
said  the  Secretary,  supplemented  by  the  acts  of  1890  and  1893, 
both  of  which  have  been  sufficiently  described.  The  act  of 
Jan.  14,  1875,  f°r  tne  resumption  of  specie  payments,  recited 
that,  "to  enable  the  Secretary  of  the  Treasury  to  prepare  and 
provide  for  the  redemption  in  this  act  authorized  or  required,  he 
is  authorized  to  use  any  surplus  revenues,  from  time  to  time,  in 
the  Treasury  not  otherwise  appropriated,  and  to  issue,  sell,  and 
dispose  of,  at  not  less  than  par,  in  coin,  either  of  the  descriptions 
of  bonds  of  the  United  States,  described  in  the  act  of  Congress, 
approved  July  14,  1870,  entitled  "An  act  to  authorize  the  refund- 
ing of  the  National  Debt."  With  the  Secretary  provision  for  the 
maintenance  of  the  parity  of  all  the  issues  of  the  Government  was 
made  by  the  above  act  and  by  no  other.  When  he  became  satisfied 
that  the  silver  could  not  be  kept  equal  in  purchasing  power  to  the 
gold  dollar  except  in  receiving  it  in  exchange  for  the  gold  dollar, 
such  exchange  would  be  made,  the  parity  of  the  metals  being 
thereby  maintained.  If  his  position  was  a  correct  one,  then  there 
should  still  be  a  steady  increase  of  government  money  of  some 
kind  to  meet  the  wants  of  the  people  increasing  at  the  rate  of 
1,600,000  annually.  Assuming  that  the  proper  amount  of  money 
in  actual  circulation  would  be  $25  a  head,  the  annual  increased 
amount  required  would  equal  $40,000,000,  which  might  be  in  the 
form  of  silver  represented  by  notes,  the  only  care  being  that  the 
amount  should  not  exceed  the  wants  of  an  increasing  population. 
Such  ratio  being  preserved,  there  would  be  no  difficulty  in  maintain- 
ing without  further  provision  of  reserves  the  value  of  the  whole  mass 
of  our  currency  at  the  par  of  gold.  Of  course  the  fallacy  arose  from 
the  assumption  that  value,  either  intrinsic  or  representative,  was  no 
necessary  attribute  of  money. 

The  purpose  of  giving  in  this  connection  the  circular  letter  of  the 
Secretary  is  to  show  the  position  of  the  sound-money  wing  of  the 
Democracy,  the  other,  and  the  dominant  one,  being  fully  committed 
to  the  free  and  unlimited  coinage  of  silver  at  the  old  ratio.  From 
the  former  no  help  is  to  be  expected  for  the  reform  of  the  currency, 


154  THE    LATE    ADMINISTRATION. 

as,  taking  the  Secretary's  authority,  it  has  no  adequate  conception 
of  the  situation  nor  of  the  conditions  necessary  for  its  restoration. 
The  Secretary  in  his  Annual  Reports  warmly  recommended  the 
retirement  of  the  gold-bearing  notes  of  the  Government,  so  exces- 
sive was  the  annoyance  caused  in  providing  the  means  for  their 
redemption.  During  his  administration  of  the  finances  he  was 
driven  into  the  street  to  raise  therefor  some  $293,000,000.  It  was 
natural  that  he  should  wish  to  avoid  such  mortifying  alternatives. 
But  he  must  have  known  that  a  recommendation  to  retire  the  legal 
tender  notes  of  the  Government  would  not  for  a  moment  be  listened 
to  unless  some  provision  was  made  to  fill  the  vacuum  that  would  be 
created.  He  proposed  no  such  measure.  He  did  indeed  recom- 
mend in  his  Report  for  1895  an  amendment  of  the  banking  laws  so 
that  the  notes  to  be  issued  under  it  should  equal  the  nominal  value 
of  the  bonds  put  up  for  their  security.  But  such  provision  would 
only  add  a  few  million  dollars  to  the  currency.  A  proposition  for 
calling  in  the  Government  notes  with  nothing  to  take  their  place 
would  have  instantly  precipitated  a  currency  panic.  Before  any 
steps  are  taken  for  the  retirement  of  a  currency,  colossal  in  amount 
like  that  of  the  United  States,  the  alternative  must  be  alike  adequate 
and  palpable.  He  could  not  propose  any,  as  he  was  committed  to 
the  maintenance  of  the  system  of  National  Banks,  and,  of  course, 
from  the  traditions  of  his  party,  wholly  against  a  National  one.  He 
accepted  the  situation  as  it  was,  his  only  care  being  its  maintenance. 
In  his  Report  for  1895  he  was  for  maintaining  the  whole  amount  of 
silver  notes  in  circulation,  of  which  some  $433,000,000  had  been 
issued.  The  reason  why  the  silver  notes  caused  no  annoyance  was 
that  they  were  not  legal  tender.  They  were  not  held  by  banks  and 
bankers,  consequently  were  not  used  for  drawing  gold  out  of  the 
Treasury.  They  remained  almost  wholly  in  the  channels  of  circula- 
tion, banks  and  bankers  sedulously  avoiding  them,  although,  accord- 
ing to  the  Secretary,  they  were  payable  in  gold.  But  these  notes, 
apparently  so  harmless,  were  the  chief  cause  of  the  embarrassments 
and  annoyances  to  which  the  Government  was  subject.  Being 
receivable  in  the  payment  of  all  the  dues,  they  cut  it  off  wholly  from 
all  power  to  demand  gold  in  their  collection.  But  for  them  the 
revenues  would  have  been  paid  in  gold,  or  in  the  gold  notes  of  the 
Government ;  such  employment  so  far  as  the  latter  were  used  add- 
ing to  their  value.  They  were  paid  in  gold,  or  in  gold  notes,  until 


THE    LATE    ADMINISTRATION.  155 

from  the  great  increase  of  silver  notes  and  the  consequent  distrust 
excited,  the  latter  wholly  superseded  the  former  mode  of  payment. 
According  to  Mr.  Carlisle,  every  dollar  of  the  public  revenues  may 
be  payable  in  silver  notes,  the  acceptance  of  which  cannot  be 
forced  upon  a  single  creditor  of  the  Government  !  With  a  Treasury 
overflowing  with  silver  notes  it  might  not  be  able  to  use  a  single 
dollar  for  any  purpose  whatever  except  to  draw  silver  c6ins  out  of 
the  Treasury.  And  yet  this  is  the  monetary  system  which  Mr.  Car- 
lisle would  set  up  as  an  institution  for  our  people. 

In  his  annual  message  under  date  of  Dec.  7,  1896,  Mr.  Cleveland 
said : 

I  believe  our  present  tariff  law,  if  allowed  a  fair  opportunity,  will,  in  the  near 
future,  yield  a  revenue  which,  with  reasonable  economical  expenditures,  will 
overcome  all  deficiencies.  In  the  meantime  no  deficit  that  has  occurred  or  may 
occur  need  excite  or  disturb  us.  To  meet  any  such  deficit  we  have  in  the 
Treasury,  in  addition  to  a  gold  reserve  of  $100,000,000,  a  surplus  of  more  than 
$128,000,000,  applicable  to  the  payment  of  the  expenses  of  the  Government,  and 
which  must,  unless  expended  for  that  purpose,  remain  a  useless  hoard,  or,  if  not 
extravagantly  wasted,  must,  in  any  event,  be  perverted  from  the  purpose  of  its 
exaction  from  our  people.  The  payment,  therefore,  of  any  deficiency  in  the 
revenue  from  this  fund  is  nothing  more  than  its  proper  and  legitimate  use.  The 
Government  thus  applying  a  surplus  fortunately  in  its  Treasury  to  the  payment  of 
expenses  not  met  by  its  current  revenues  is  not  at  all  to  be  likened  to  a  man  living 
beyond  his  income  and  thus  incurring  debt  or  encroaching  on  his  principal. 

During  his  last  administration  Mr.  Cleveland  was  incessant  in  his 
demands  for  the  retirement  of  the  gold-bearing  notes  of  the  Govern- 
ment, the  sole  cause,  he  declared,  of  the  disastrous  condition  of 
affairs  that  prevailed.  For  their  retirement,  by  his  direction,  bonds 
to  the  amount  of  $262,000,000,  producing  $293,000,000,  were  issued. 
The  amount  of  the  notes  taken  in  was  equal  to  the  proceeds  of  the 
bonds.  Of  these  $165,000,000,  up  to  Dec.  7,  1896,  had  been  paid 
out  for  the  current  expenses  of  the  Government.  The  notes,  Mr. 
Cleveland  declared,  were  an  endless  chain  for  pulling  money  out  of 
the  Treasury.  The  only  way  to  break  it  was  to  render  the  Govern- 
ment self-supporting  from  its  revenues  —  a  proposition  which  he 
persistently  refused  to  countenance.  The  endless  chain  was  conse- 
quently allowed  to  run  with  full  force.  If  by  means  of  it  gold  could 
be  pulled  out  of  the  Treasury,  a  bigger  sum  could  be  put  in  by  bor- 
rowing. The  whole  proceeds,  $293,000,000,  of  the  loans,  or  the^ 


156  THE    SOUND    MONEY    WING    OF    THE    DEMOCRACY. 

amount  on  hand  at  any  one  time,  became  a  "  surplus  in  the  Treas- 
ury," to  be  applied  to  the  wants  of  the  Government.  Otherwise  it 
would  be  squandered  or  stolen.  To  what  better  purpose  could  the 
Government  put  its  money  —  "an  exaction  from  the  people"  — 
than  by  means  of  it  to  defray  the  expenses  of  the  Government  of  the 
people  !  The  idea  of  retiring  the  notes,  if  it  were  ever  entertained, 
seemed  wholly  lost.  But  not  a  dollar  could  be  raised  by  the  issue 
of  bonds  for  the  support  of  the  Government.  In  his  annual  message 
for  1895  Mr.  Cleveland  expressly  declared  that  "the  Secretary  of 
the  Treasury  has  no  authority  whatever  to  issue  bonds  to  increase 
the  ordinary  revenues,  or  to  pay  the  expenses  of  the  Government." 
Certainly  he  could  not  do  indirectly  what  he  could  not  do  directly. 
Had  the  Government  been  self-sustaining  from  its  revenues,  every 
note  taken  in  could  have  been  held  in  the  Treasury, —  in  effect,  re- 
tired, —  no  occasion  arising  for  its  reissue.  In  using  the  surplus 
$128,000,000  in  the  Treasury,  "the  Government  was  not  to  be 
likened,"  said  Mr.  Cleveland,  "to  a  man  living  beyond  his  means 
by  incurring  a  debt  or  encroaching  upon  his  principal."  But  in 
what  form  was  the  $128,000,000,  the  surplus  in  the  Treasury?  In 
that  of  promissory  notes  payable  in  gold  on  demand,  for  the  dis- 
charge of  which  debts  in  another  form  had  to  be  contracted.  Is 
the  power  to  create  a  debt  a  surplus  in  the  Treasury  ?  It  is  difficult 
from  its  wildness  and  incoherency  to  reply  to  Mr.  Cleveland's  state- 
ment. In  making  it  he  was  mentally  widely  astray. 

THE    SOUND    MONEY    WING    OF    THE    DEMOCRACY. 

The  principles  of  the  Sound  Money  wing  of  the  Democracy  were 
set  forth  in  the  platform  adopted  at  its  National  Convention,  held 
at  Indianapolis,  Sept.  3,  1896.  Its  first  declaration  was  against 
"  Paternalism  and  all  class  legislation."  In  reference  to  the  cur- 
rency, it  said  : 

The  experience  of  mankind  has  shown  that  by  reason  of  their  natural  qualities, 
gold  is  the  necessary  money  of  the  large  affairs  of  commerce  and  business,  while 
silver  is  conveniently  adapted  to  minor  transactions,  and  the  most  beneficial  use 
of  both  together  can  be  insured  by  the  adoption  of  the  former  as  a  standard  of 
monetary  measure,  and  the  maintenance  of  silver  at  a  parity  with  gold  by  its 
limited  coinage  under  suitable  safeguards  of  law. 

Thus  the  largest  possible  enjoyment  of  both  metals  is  gained  with  a  value  uni- 
versally accepted  throughout  the  world,  which  constitutes  the  only  practical 
bi-metallic  currency. 


THE    SOUND    MONEY    WING    OF    THE    DEMOCRACY.  157 

The  substance  of  this  is  that  gold  is  to  be  the  standard  of  value, 
but  silver  money  is  also  to  be  provided,  its  value  to  be  maintained 
at  the  standard  of  gold  by  limiting  its  coinage.  In  this  way,  "  the 
largest  possible  enjoyment  of  both  metals  is  gained"  —  in  other 
words,  practical  bi-metallism  will  be  secured.  The  statement  begs 
the  whole  question.  Coinage  imparts  no  value  to  that  which  will 
never  be  used.  Debased  subsidiary  coins  are  maintained  at  the 
value  of  gold  for  the  reason  that  they  serve  equally  with  gold  in  the 
payment  of  the  revenues,  in  the  purchase  of  postage  stamps,  for  ex- 
ample. They  are  constantly  returning  to  the  Government  to  be  again 
paid  out  in  exchange  for  gold,  or  its  equivalent.  But  silver  dollars 
will  never  be  used  in  the  payment  of  the  revenues  on  any  consider- 
able scale,  as  a  more  convenient  kind  of  money  will  necessarily  be 
provided.  They  never  will  be  used  as  the  ordinary  instrument  of 
exchange  from  the  inconvenience  of  their  use  and  uncertainty  as  to 
their  value.  They  are  a  wholly  superfluous  form  of  money  with 
every  commercial  people,  who,  on  a  large  scale,  will  have  only  two 
kinds  —  gold  as  a  standard  of  value,  and  paper,  the  symbol  of  mer- 
chandise, as  the  instrument  of  its  transfer.  The  Sound  Money  wing 
of  the  Democracy  is  still  a  victim  to  the  old  delusion  that  money 
derives  its  value  from  the  necessity  of  a  medium  of  exchange  — 
that  anything  may  serve  as  such  if  the  amount  be  not  excessive. 
It  differs  from  the  Free  Coinage  wing,  not  in  principle,  but  in  the 
matter  of  quantity.  It  says  there  may  be  too  much  of  one  kind  of 
money,  silver;  that  perhaps  $500,000,000  would  not  be  too  much, 
while  $1,000,000,000  would  be.  The  reply  of  the  other  wing  is 
if  $500,000,000  are  good  money  to-day,  $1,000,000,000  will  be  by 
the  time  that  that  amount  could  be  coined.  Before  any  ordinary 
audience —  before  that  composed  of  the  people  of  the  United  States 
—  the  Free  Coinage  wing  of  the  Democracy  would  carry  the  day, 
the  question  turning  wholly  upon  quantity,  every  one  wishing  to  see 
that  increased.  As  it  is,  the  Sound  Money  wing,  instead  of  leading 
the  way,  is  the  great  obstacle  to  any  adequate  measure  of  reform. 
Their  first  purpose  is  to  discharge  "  Paternalism  "  from  Government. 
But  the  exercise  of  a  great  deal  of  "  Paternalism  "  will  be  required 
before  we  can  be  placed  upon  firm  and  solid  ground.  Mere  nega- 
tion will  never  place  us  there. 


158  THE    FREE    COINAGE    DEMOCRACY. 

THE    FREE    COINAGE    DEMOCRACY. 

The  principles  of  the  Free  Coinage  wing  of  the  Democracy  — 
the  unlimited  coinage  of  silver  at  the  ratio  of  sixteen  to  one  —  are 
too  well  known  to  require  statement  here.  That  it  has  an  illustrious 
ancestry  is  well  shown  by  a  letter  addressed  by  its  great  leader,  Hon. 
William  J.  Bryan,  late  candidate  of  the  Democracy  for  the  Presi- 
dency, in  reply  to  an  invitation  to  the  banquet,  Jan.  8,  1897,  of 
the  "Jackson  Democratic  Association,"  of  the  District  of  Columbia. 
In  it  he  said  : 

I  regret  that  circumstances  prevent  my  celebrating  Jackson  Day  with  you. 
We  have  reason  to  commemorate  the  virtues  of  the  hero  of  New  Orleans.  His 
courageous  defence  of  the  rights  of  the  people  against  the  assaults  of  consolidated 
capital  made  him  the  idol  of  his  party,  and  the  remembrance  of  his  achievements 
should  inspire  the  Democrats  of  this  generation  to  renewed  devotion  to  a  govern- 
ment of  the  people,  by  the  people,  and  for  the  people.  His  final  triumph  in  a 
struggle  similar  to  that  in  which  the  Democracy  was  engaged  this  year  gives  the 
encouragement  and  hope  of  ultimate  success. 

THE    ADMINISTRATION. 

In  his  inaugural  message,  March  4,  1897,  President  McKinley 
said  : 

The  country  is  suffering  from  industrial  disturbances  from  which  speedy  relief 
must  be  had.  Our  financial  system  needs  some  revision  ;  our  money  is  all  good 
now,  but  its  value  must  not  further  be  threatened.  It  should  all  be  put  upon 
an  enduring  basis,  not  subject  to  easy  attack,  nor  its  stability  to  doubt  or  dispute. 
Our  currency  should  continue  under  the  supervision  of  the  Government.  The 
several  forms  of  our  paper  money  offer,  in  my  judgment,  a  constant  embarrass- 
ment to  the  Government. 

Therefore  I  believe  it  necessary  to  devise  a  system  which,  without  diminishing 
the  circulating  medium  or  offering  a  premium  for  its  contraction,  will  present  a 
remedy  for  those  arrangements  which,  temporary  in  their  nature,  might  well  in  the 
years  of  our  prosperity  have  been  displaced  by  wiser  provisions. 

With  adequate  revenue  secured,  but  not  until  then,  we  can  enter  upon  such 
changes  in  our  fiscal  laws  as  will,  while  insuring  safety  and  volume  to  our  money, 
no  longer  impose  upon  the  Government  the  necessity  of  maintaining  so  large  a 
gold  reserve,  with  its  attendant  and  inevitable  temptations  to  speculation. 

Most  of  our  financial  laws  are  the  outgrowth  of  experience  and  trial,  and 
should  not  be  amended  without  investigation  and  demonstration  of  the  wisdom 
of  the  proposed  changes.  We  must  be  both  "sure  we  are  right  "  and  "make 
haste  slowly." 

If,  therefore  Congress  in  its  wisdom  shall  deem  it  expedient  to  create  a  com- 
mission to  take  under  early  consideration  the  revision  of  our  coinage,  banking, 


THE    PRESENT    ADMINISTRATION.  159 

and  currency  laws,  and  give  them  that  exhaustive,  careful,  and  dispassionate 
examination  that  their  importance  demands,  I  shall  cordially  concur  in  such 
action. 

If  such  power  is  vested  in  the  President,  it  is  my  purpose  to  appoint  a  com- 
mission of  prominent,  well-informed  citizens  of  different  parties,  who  will  com- 
mand public  confidence,  both  on  account  of  their  ability  and  special  fitness  for 
the  work.  Business  experience  and  public  training  may  thus  be  combined,  and 
the  patriotic  zeal  of  the  friends  of  the  country  may  be  so  directed  that  such  a 
report  will  be  made  as  to  receive  the  support  of  all  parties,  and  our  finances 
seem  to  be  the  subject  of  mere  partisan  contention.  The  experiment  is,  at  all 
events,  worth  a  trial,  and,  in  my  opinion,  it  can  but  prove  beneficial  to  the  entire 
country. 

The  question  of  international  bi-metallism  will  have  early  and  earnest  attention. 
It  will  be  my  constant  endeavor  to  secure  it  by  cooperation  with  the  other  great 
commercial  powers  of  the  world.  Until  that  condition  is  realized  when  the 
parity  between  our  gold  and  silver  money  springs  from  and  is  supported  by  the 
relative  value  of  the  two  metals,  the  value  of  the  silver  already  coined,  and  of 
that  which  may  hereafter  be  coined,  must  be  kept  constantly  at  par  with  gold  by 
every  resource  at  our  command.  The  credit  of  the  Government,  the  integrity  of 
its  currency,  and  the  inviolability  of  its  obligations  must  be  preserved.  This  was 
the  commanding  verdict  of  the  people,  and  it  will  not  be  unheeded. 

In  asserting  that  our  money  is  all  good  money,  but  that  its  value 
must  not  be  "threatened,"  the  President  begged  the  whole  question. 
Instead  of  being  good  money,  greenbacks,  silver  certificates,  and 
silver  notes  are  all  bad  money.  None  could  be  worse.  By  declar- 
ing that  the  value  of  our  money  must  not  be  further  "threatened" 
he  gives  away  his  whole  case.  The  value  of  gold  money  cannot  be 
"threatened,"  for  the  reason  that  with  all  nations  it  is  the  highest 
form  of  capital.  The  value  of  symbolic  money  cannot  be  "  threat- 
ened," as  its  nominal  value  does  not  exceed  the  value  of  its  con- 
stituent certain  to  be  speedily  taken  for  consumption  that  society 
may  exist.  The  value  of  silver  is  always  "threatened"  by  the  con- 
stant variation  in  its  value.  As  it  is  no  longer  money,  the  more  its 
value  is  "threatened"  the  greater  the  public  gain  from  its  widely 
increased  use  in  the  arts.  No  advantage  could  be  greater  than, 
from  reduced  cost  of  production,  to  have  the  price  of  silver  fall  to 
that  of  steel.  The  notes  issued  against  it  have  the  same  infirmity 
as  their  constituent.  The  value  of  the  gold-bearing  notes  of  the 
Government  is  constantly  "  threatened,"  for  the  reason  that  pre- 
vious to  their  issue  no  adequate  provision  was  made  for  their  retire- 
ment. Such  provision  may  never  be  made ;  or  made  only  at  a  far 
distant  day.  As  no  provision  for  an  issue  on  a  large  scale  will  ever 


l6o  THE    PRESENT    ADMINISTRATION. 

be  made,  the  fear  that  a  large  amount  of  notes  will  be  presented  for 
redemption  is  enough  of  itself  to  produce  a  panic.  Money  of  our 
banks  to  the  amount  of  $200,000,000  is  daily  presented  for  redemp- 
tion, but  such  presentation  is  no  threat  against  it,  as  before  its  issue 
ample  means  are  provided  for  its  retirement.  Nor  by  such  presen- 
tations is  the  amount  of  bank  money  reduced,  as  new  issues  are 
being  constantly  made  to  symbolize  new  creations  of  merchandise 
to  take  the  place  of  the  old.  If  our  Government  were  suddenly 
called  to  take  in,  say,  $10,000,000  of  the  $830,000,000  of  its  notes 
now  outstanding,  it  would  send  a  cold  chill  throughout  the  country, 
the  value  of  the  whole  volume  being  seriously  "  threatened."  Should 
an  equal  amount  be  drawn  for  ten  consecutive  days,  the  Government 
might  be  without  a  dollar  in  its  vaults,  with  $730,000,000  of  its 
notes  still  to  be  provided  for.  Does  not  this  statement  show  the 
wide  difference  between  a  currency  of  banks  and  that  of  the 
Government,  and  that  comparatively  the  latter  is  a  very  bad  one  ? 
That  money  may  be  free  from  "  threats,"  Government  should 
have  nothing  to  do  with  its  creation.  Its  money  will  never  be 
kept  within  bounds,  as  not  a  dollar  of  it  has  a  right  to  be.  There 
cannot  be  too  much  of  the  money  of  commerce.  Metallic  money 
is  capital.  Government  concerns  itself  merely  about  its  weight  and 
fineness.  Symbolic  money  is  as  firmly  based  as  metallic  money, 
barring  the  accidents  incident  to  all  human  affairs,  the  purpose  of 
gold  as  money  being  to  reach  some  other  kinds  of  merchandise. 
The  real  makers  of  the  money  of  the  country  are  the  producers  of 
the  country.  It  arises  from  the  discount  of  the  bills  issued  in  the 
distribution  of  their  products.  If  sales  are  slow  no  new  purchases 
will  be  made  until  the  old  stocks  are  run  off.  With  cessation  of 
demand  production  ceases,  or  products  are  stored.  Symbolic  money 
only  measures  the  amount  of  merchandise  in  process  of  distribution. 

The  President  would  "  devise  a  system  which,  without  diminishing 
the  circulating  medium  or  offering  a  premium  for  its  contraction,  will 
present  a  remedy  for  those  arrangements  which,  temporary  in  their 
nature,  might  well  in  the  years  of  prosperity  have  been  displaced  by 
wiser  provisions."  This  statement,  with  all  due  respect  to  the 
President,  requires  no  reply,  as  it  has  no  meaning.  He  has  to  enter 
the  world  of  reality  before  he  can  enter  upon  any  work  of  reform. 

The  statement  that  "  with  adequate  revenue  secured,  but  not  until 
then,  we  can  enter  upon  such  a  change  in  our  fiscal  laws  as  will, 


THE    PRESENT    ADMINISTRATION7.  l6l 

while  securing  safety  and  volume  to  our  money,  no  longer  impose 
upon  the  Government  the  necessity  of  maintaining  so  large  a  gold 
reserve,  with  its  attendant  and  inevitable  temptation  to  speculation," 
is  putting  the  cart  before  the  horse,  or  sacrificing  the  more  to  the 
less  important.  We  may  for  years  be  without  an  adequate  revenue 
without  affecting  injuriously  the  business  operations  or  credit  of  the 
country.  An  expenditure  of  $100,000,000  in  excess  of  our  income 
111  ight  be  no  cause  of  alarm,  as  it  would  be  well  understood  that  it 
was  in  our  power,  any  day,  to  provide  an  adequate  revenue,  fund 
arrearages,  and  provide  for  their  payment,  certain  that  such  measures 
would  be  taken  before  any  disorder  resulted.  But  a  vicious  currency 
is  a  poison  in  our  system,  a  terrible  one,  and,  when  it  has  reached 
the  magnitude  of  our  own,  its  removal  is  the  first,  not  the  second, 
duty.  In  its  retirement  the  question  of  the  revenues  need  not 
necessarily  be  considered.  Every  dollar  of  the  $830,000,000  of 
government  notes  can  be  discharged  without  the  interposition  of  a 
dollar  of  gold.  The  matter  of  great  concern  is,  with  its  discharge, 
the  provision  of  an  adequate  currency  to  take  its  place. 

The  recommendation  of  a  commission  "  to  take  under  early  consid- 
eration the  revision  of  the  coinage,  banking,  and  currency  laws"  is 
an  excellent  one,  although  there  should  be  no  more  reason  for  it 
than  one  to  determine  whether  for  the  last  fifty  years  the  sun  has 
risen  and  set  on  regulation  time.  Every  one  in  affairs  should  be  as 
familiar  with  our  history  as  with  the  rising  and  setting  of  the  sun. 
We  send  commissions  to  unearth  the  past  of  Egypt  and  Assyria. 
Why  not  create  one  to  explore  our  own  soil  and  recover  from  it 
monuments  far  more  priceless  than  those  of  ancient  civilization  ?  — 
monuments  buried  as  deep  from  the  inroads  of  barbarians  led  by 
General  Jackson  as  are  the  treasures  of  the  Old  World.  Such  a 
commission,  well  discharging  its  duties,  would  bring  to  light  a  perfect 
currency  long  passed  from  sight  and  memory.  Whether  we  have  the 
sense  or  manhood  to  restore  the  severe  and  simple  style,  when  dis- 
covered, of  the  past,  is  quite  another  question.  From  the  time  of 
Jackson  the  nation  has  been  taught  that  "  consolidated  capital  "  is 
the  enemy  of  mankind.  But  "consolidated  capital  "  is  to  supply  our 
currency  if  we  are  to  have  one  worthy  of  the  name.  The  poison  is 
so  deep  and  widespread  that  the  whole  world  of  the  United  States 
seems  to  be  entering  on  a  grand  crusade  against  this  common  enemy 
of  the  race,  displaying  already  the  great  vice  of  democracies,  hatred 


l62  B1-METALL1SM. 

and  jealousy  of  everything  above  the  common  level,  and  that  a  very 
low  one. 

BI-METALLISM. 

"  It  will  be  my  constant  endeavor,"  said  Mr.  McKinley  in  his  inaugural 
message,  "  to  heartily  cooperate  with  other  great  commercial  powers  of  the 
world  for  the  establishment  of  bi-metallism." 

This  reference  to  bi-metallism  is  to  be  regretted  at  this  critical 
time  as  tending  to  divert  public  attention  from  the  all-important 
matter,  the  reform  of  the  currency,  for  notwithstanding  the  attention 
it  is  attracting,  bi-metallism  seems  hardly  worthy  the  serious  notice 
of  a  great  commercial  people  like  our  own.  Its  claims  are  based 
upon  the  assumption,  wholly  without  foundation,  that  by  means  of  it 
the  amount  of  money  may  be  increased.  Instead  of  this  the  greater 
the  amount  of  metallic  money  in  circulation  the  less  the  amount  of 
other  kinds,  and  the  less  the  aggregate.  Capital  discharged  from 
the  exchanges  finds  its  proper  employment  in  production.  If  mer- 
chandise is  abundant,  the  instruments  of  its  distribution  —  money  — 
will  be  abundant.  Such  instruments  or  processes  are  now  so  perfect 
that  metallic  money  has  been  almost  wholly  discharged  from  use. 
In  ratio  thereto  production  has  been  increased  and  prices  reduced, 
the  advantage  inuring  to  consumers ;  the  returns  of  capital,  from  its 
abundance,  being  no  greater  with  low  than  with  high  prices.  The 
advantage  to  capital  is  the  enlarged  field.  So  great  have  been  the 
improvements  in  the  methods  of  production  that  a  day's  work  to-day 
produces  fifty  times  the  quantity  of  steel  that  it  did  fifty  years  ago. 
Results  almost  equally  marvellous  have  been  accomplished  in  dis- 
tribution as  in  production.  During  the  past  year  1,000,000,000  tons 
of  merchandise,  having  an  estimated  value  of  $20,000,000,000,  were 
distributed  by  means  of  written  or  printed  instruments,  costing 
nothing  in  themselves,  but  serving  in  distribution  all  the  uses  of 
metallic  money,  being  at  the  same  time  far  more  convenient  of  use. 
We  can  no  more  return  to  the  old  methods  of  distribution  by 
metallic  money,  whether  silver  or  gold,  than  to  the  old  crucible 
process  in  the  production  of  steel.  But  with  the  discharge  of  both 
metals  as  instruments  of  exchange,  one  must  be  retained  as  the 
standard  at  the  value  of  which  that  of  all  other  articles  is  to  be 
rated  and  all  contracts  solved ;  and  which,  consequently,  as  the 
universal  equivalent,  must  serve  as  the  reserves  of  the  issuers  of 
paper  money.  As  gold  has  a  value  thirty-two  times  greater  than 


BI-METALLISM.  163 

silver  in  ratio  to  its  weight,  and  sixty-four  times  greater  in  ratio  to 
its  bulk,  it  can  be  cared  for  and  moved  from  place  to  place  at  a  far 
less  cost  than  an  equal  value  of  silver.  Its  value  is  more  uniform 
than  silver  from  the  greater  uniformity  in  its  production  and  in  the 
demand  therefor.  As  the  cost  of  standards  of  value  and  of  reserves, 
whatever  the  metal  used,  is  the  same,  gold,  for  the  reasons  given, 
has  necessarily  the  preference.  There  can  be  no  deliberation  as  to 
the  kind  to  be  used.  Is  gold  in  sufficient  abundance  for  the  pur- 
poses which  it  has  to  serve?  A  standard  of  value  does  not  ordi- 
narily interpose  in  affairs  like  those  of  extension  or  weight.  It  is 
a  final  arbiter  seldom  appealed  to.  If  in  the  opinion  of  one 
proposing  to  purchase  merchandise  its  value  is  up  to  the  price 
demanded,  he  will  take  it ;  if  not,  not.  If  the  price  offered  is  not 
up  to  its  value  measured  by  its  cost  and  a  fair  profit  added,  it  will 
not  be  accepted.  Not  in  one  transaction  in  a  million  does  the 
standard  of  value  interpose.  Not  in  one  transaction  in  a  million 
does  the  idea  of  a  standard  of  value  ever  suggest  itself.  Merchan- 
dise is  sold  by  the  delivery  of  what  may  be  termed  the  title  deeds  to 
the  same,  the  possession  of  which'  secures  to  the  holder  the  right  to 
its  constituent.  Although  every  contract  is  in  terms  payable  in  gold, 
not  one  in  a  million  is  solved  by  it,  creditors  taking  their  equivalent 
in  some  other  kind  of  merchandise,  to  reach  which  gold,  as  money, 
would  be  used.  In  affairs  gold  is  demanded  only  as  the  universal 
equivalent  when  the  paper  money  of  commerce  cannot  be  converted 
into  the  kind  of  merchandise  desired.  Were  no  paper  money  issued 
that  did  not  represent  an  equal  value  of  merchandise,  metallic  money 
would  be  almost  wholly  discharged  from  affairs.  The  tendency  is 
steadily  and  necessarily  in  such  direction,  even  in  the  United  States, 
possessed  of  the  worst  monetary  system  ever  devised, —  the  National 
Government  making  vast  issues  of  notes  to  serve  as  money  for  the 
retirement  of  which  no  adequate  provision  is  made ;  the  notes  of 
banks  being  limited  to  90  per  cent,  of  the  nominal  value  of  the 
bonds  put  up  as  security  therefor,  no  restrictions  being  imposed  as 
to  the  subject  of  their  loans.  The  want  of  a  competent  system  with 
us  has  been  partly  made  good  by  the  establishment  of  Clearing 
Houses  at  every  considerable  place  of  trade,  the  members  of  which 
are  compelled  to  discharge  daily  in  coin,  or  in  lawful  money,  all 
balances  found  against  them.  In  this  way  the  rule  of  the  strong 
becomes  that  of  the  weak.  It  is  at  these  houses  that  the  amount  of 


164  BI-METALLISM. 

balances  arising  in  the  domestic  trade  of  the  country  is  determined 
and  discharged.  The  amount  daily  arising  at  the  present  time 
averages  about  $14,000,000,  the  exchanges  daily  taking  place  equal- 
ling $200,000,000.  The  first  sum  measures  that  required  in  the 
domestic  trade  of  the  country,  creditors  at  the  Clearing  Houses  one 
day  being  debtors  the  next.  Of  course  a  much  larger  sum  would 
under  all  conditions  as  a  matter  of  caution  be  maintained.  Should 
we  return  to  a  normal  system,  the  amounts  required  at  the  Clearing 
Houses  would  be  greatly  reduced.  With  such,  no  considerable 
balances  to  be  discharged  in  gold  could  arise  in  the  foreign  trade 
of  the  country,  the  instruments  of  expenditure  never  exceeding  the 
means  of  the  people.  Up  to  a  comparatively  recent  date  the  average 
amount  of  gold  held  by  the  Bank  of  England  as  the  reserves  of  all 
the  issuers  in  the  United  Kingdom,  their  issues  largely  exceeding 
those  of  our  own  institutions,  was  about  $110,000,000,  or,  say, 
^22,000,000.  This  has  been  lately  largely  increased,  in  common 
with  the  action  of  all  the  great  Continental  powers,  in  view  of  military 
and  political  complications.  With  an  adequate  system  $100,000,000 
in  gold  would  be  ample  for  all  the  purposes  which,  with  us,  it  would 
be  called  upon  to  serve.  With  it  we  could  presently  discharge  from 
use  some  $500,000,000  of  gold,  assuming  the  amount  in  the  country 
to  be  $600,000,000 ;  and  an  equal  nominal  amount  of  silver,  the 
whole  to  be  applied  to  production  and  distribution.  As  the  world's 
stock  of  gold  exceeds  $4,000,000,000,  and  as  the  annual  product, 
rapidly  increasing,  exceeds  $200,000,000,  our  own  share  exceeding 
$50,000,000,  and  as  with  us  gold  money  has  but  one  use,  to  serve 
as  the  reserves  of  the  issuers  of  paper  money,  we  have  no  more 
reason  to  trouble  ourselves  about  the  adequacy  of  the  amount  than 
about  the  adequacy  of  rainfall,  or  of  the  vital  air,  to  meet  the  wants 
of  our  increasing  numbers ;  and  no  more  concern  about  the  restora- 
tion of  silver  as  money  than  that  of  old  mechanical  contrivances  long 
since  relegated  to  the  scrap  heap. 

We  have  briefly  summarized  the  laws  and  attributes  of  money  as 
illustrated  by  our  history  —  a  history  which  fortunately  has  solved 
every  question  that  can  arise  in  reference  thereto.  At  the  outset 
bi-metallism  was  attempted,  to  fail  with  the  attempt.  Thereafter  no 
thought  of  the  reconciliation  of  the  coin  value  of  the  two  metals 
was  ever  entertained.  For  forty  of  the  first  years  of  our  existence 
as  a  people  silver  was  our  proper  metallic  money.  In  1834  gold, 


BI-METALL1SM.  165 

by  its  deliberate  debasement,  took  the  place  of  silver.  Neither 
metal,  while  serving  as  the  standard  of  value,  was  ever  the  instru- 
ment, on  a  large  scale,  of  exchange.  In  1830,  for  the  first  time 
from  the  establishment  of  the  Government,  attention  was  turned  to 
the  subject,  and  on  the  23d  of  December  of  that  year  a  special 
committee  of  the  House,  of  which  Campbell  P.  White,  a  member 
from  the  city  of  New  York,  was  chairman,  was  directed  to  inquire 
into  the  expediency  of  adopting  as  our  own  the  coins  of  the  newly 
established  Spanish-American  Governments,  the  people  of  which 
were  the  great  producers  of  the  precious  metals;  and  also  to 
inquire  whether  any  additional  provisions  were  necessary  in  relation 
to  the  coinage  of  foreign  silver  at  our  own  mints.  The  committee 
reported,  February  23,  1831,  that  of  coins  having  a  value  of  $37,- 
000,000  that  had  issued  from  our  mints,  of  which  $27,000,000  were 
silver,  only  about  $7,000,000  in  value  of  the  latter  were  in  circula- 
tion ;  $4,000,000  being  in  the  hands  of  the  banks,  the  coin  reserves 
of  which  equalled  $22,114,917  ;  and  about  $3,000,000  in  the  hands 
of  the  people.  The  total  amount  of  metallic  money  in  their  hands 
did  not  exceed  $5,000,000,  or  30  cents  per  head.  Of  the  gold 
coin,  $9,000,000,  not  a  dollar  remained  in  circulation.  If  we  could 
not  retain  our  own  coinage,  if  we  made  no  difference  between  it 
and  that  of  other  nations,  why  not,  it  was  asked,  adopt  their  coins 
as  our  own,  saving  thereby  a  large  annual  outlay?  In  view  of  a 
suggestion  so  reasonable,  the  committee  recommended  that  the 
silver  dollars  of  Mexico,  Central  America,  Peru,  Chili,  and  Brazil, 
and  the  five-franc  pieces  of  France,  be  adopted  as  our  own,  pro- 
vided that  they  were  of  standard  fineness.  For  such  a  recom- 
mendation precedents  of  our  use  of  the  metallic  moneys  of  Great 
Britain,  Portugal,  France,  and  Spain  were  cited.  As  was  proper, 
the  committee  recommended  that  subsidiary  coins  should  issue  from 
our  own  mints,  the  annual  amount  not  to  exceed  $200,000  or 
$300,000.  The  conclusions  to  which  it  came  were  summarized  as 
follows  : 

"  i.  That  the  operations  of  commerce  will  assuredly  dispense  to 
every  country  its  useful  and  equitable  proportion  of  the  gold  and 
silver  in  currency,  if  it  is  not  repulsed  by  paper  or  subjected  to  legal 
restrictions. 

"2.  That  it  cannot  be  of  essential  importance  to  any  State 
whether  its  proportion  of  the  money  of  commerce  thus  distributed 


1 66  BI-METALLISM. 

consists  of  gold  or  of  silver,  or  of  both  metals,  it  being  the  instru- 
ment of  exchange,  but  not  the  commodity  really  wanted. 

"  3.  That  there  are  inherent  and  incurable  defects  in  the  system 
which  regulates  the  standard  of  value  in  both  gold  and  silver :  its 
instability  as  a  measure  of  contracts,  and  mutability  as  the  practical 
currency  of  a  particular  nation,  are  serious  imperfections,  whilst  the 
impossibility  of  maintaining  both  metals  in  concurrent,  simultaneous, 
or  promiscuous  circulation  appears  to  be  clearly  ascertained. 

"4.  That  the  standard  being  fixed  in  one  metal  is  the  nearest 
approach  to  invariableness,  and  precludes  the  necessity  of  further 
legislative  interference. 

"5.  That  gold  and  silver  will  not  circulate  promiscuously  and 
concurrently  for  similar  purposes  of  disbursement.  Nor  can  coins 
of  either  metal  be  sustained  in  circulation  with  bank  notes,  possess- 
ing public  confidence,  of  the  like  denominations."  1 

The  report  of  the  committee  was  conclusive  of  the  whole  subject 
—  that  the  operations  of  commerce  will  assuredly  dispense  to  every 
country  its  useful  and  equitable  proportion  of  the  silver  and  gold 
in  currency  (silver  from  the  small  transactions  taking  place  being  at 
the  time  equally  convenient  in  use  as  gold  and  equally  uniform  in 
value)  ;  that,  although  the  two  metals  were  at  the  time  nearly 
uniform  in  value,  they  could  not  be  so  reconciled  that  they  would 
circulate  side  by  side ;  that  the  standard  of  value  must  be  fixed  in 
one  metal  alone,  and  that  from  the  use  of  paper  money  neither 
metal  could  be  maintained  in  circulation  as  the  ordinary  instrument 
of  exchange.  The  conclusions  of  the  committee  had  all  the  force 
of  mathematical  demonstration,  and  served  implicitly  as  our  guide 
down  to  1878,  when  Congress,  with  incredible  recklessness  and 
levity,  restored  the  coinage  of  silver  at  the  old  ratio,  although  the 
value  of  the  silver  dollar  had  fallen  to  89  cents  in  gold.  The  bill 
was  vetoed  by  the  President,  Mr.  Hayes,  as  a  flagrant  act  of  improvi- 
dence and  bad  faith.  It  was  held  in  the  debate  that  the  coinage  of 
metals  at  a  rate  widely  differing  from  their  commercial  value  would 
have  the  effect  to  reconcile  their  value  at  any  ratio  that  might  be 
established,  although  all  history  had  demonstrated  that  the  insignia 
of  governments  has  no  effect  to  increase  the  value  of  the  metal  on 
which  it  is  impressed.  It  was  most  unfortunate  that  precedents 
long  established,  and  which  carried  the  force  of  demonstration, 

1  See  page  50. 


BI-METALLISM.  167 

should  have  been  wantonly  thrown  aside.  It  was  still  more  unfort- 
unate that  the  nature  of  the  act  should  have  been  concealed  by  an 
issue  of  notes  assumed  to  be  promises  of  the  Government  to  pay 
gold.  As  the  coinage  was  on  account  of  the  Government,  it  was 
held  bound  to  sustain  all  its  issues  at  the  par  of  gold,  no  matter  how 
much  they  might  differ  from  it  in  value.  It  is  hardly  too  much  to 
say  that  no  such  purpose  was  ever  really  entertained  when  the  act 
of  1878,  or  that  of  1890,  was  passed,  as  otherwise  some  provision 
would  have  been  made  to  maintain  the  value  of  the  coinage.  It  is 
not  too  much  to  say  that,  from  the  absurdity  of  the  proposition,  no 
provision  will  ever  be  made  for  the  maintenance  of  the  debased 
silver  coin  at  the  par  of  gold.  The  cost  of  such  maintenance  would 
fully  equal  a  provision  of  gold,  to  which  is  to  be  added  the  cost  of 
the  machinery  that  would  be  required.  All  this  talk  about  the 
maintenance  of  the  coins  of  the  two  metals  at  certain  ratios  is  with- 
out a  particle  of  sense  or  reason.  We  have  reached  a  point  in 
which  we  can  no  longer  afford  to  indulge  in  such  idle  vaporings. 
Unless  some  remedial  measures  are  speedily  taken,  the  conscious- 
ness, only  partially  defined,  that  our  monetary  system  is  a  false  one, 
that  Government  may  be  speedily  called  upon  for  large  sums  of 
gold,  its  inherent  weakness  as  an  issuer  of  paper  money  being  thereby 
disclosed,  is  certain  to  lead  to  a  panic,  Government  and  people 
being  alike  involved  in  a  common  catastrophe. 

Apart  from  the  absurdity  of  bi-metallism  as  a  proposition,  the 
appointment  of  a  Commission  to  treat  with  other  great  powers  should 
be  deprecated,  unless  we  are  prepared  to  meet  them  on  equal  terms. 
While,  from  the  force  of  laws  which  no  intelligent  people  can  long 
resist,  other  powers  have  been  busy  in  discharging  themselves  of 
their  useless  loads  of  silver,  we  have  been  piling  it  up  till  our  pur- 
chases have  reached  459,946,701  ounces,  at  a  cost  of  $464,210,262. 
Assuming  the  silver  to  be  worth  66  cents  the  ounce,  the  loss  on  our 
purchases  already  equals  $160,000,000.  The  interest  on  them 
equals,  say,  $140,000,000,  the  total  loss  so  far  being  $300,000,000. 
With  such  a  load  on  our  own,  should  we  appeal  to  other  great 
powers  for  the  establishment  of  bi-metallism,  the  natural  inference 
would  be  that  our  purpose  was  to  throw  a  part  of  it  upon  their 
shoulders.  Should  we  expose  ourselves  to  such  insinuations  ?  As 
evidence  of  our  sincerity,  let  us  meet  the  great  powers,  if  we  are 
to  meet  them,  on  equal  terms. 


l68  THE    REMEDY. 

If  our  currency  was  wholly  symbolic,  we  might  with  safety  dally 
with  the  subject  of  bi-metallism,  certain  that  it  would  never  come  to 
anything  but  speculation  and  talk  ;  but  as  it  is  largely  one  of  Govern- 
ment notes,  the  consideration  of  this  subject  as  a  serious  proposition 
has  the  direct  effect  to  delay  the  inauguration  of  any  measures  of 
reform.  If  by  international  agreement  the  value  of  silver  as  money 
can  be  doubled,  certainly  by  compact  among  ourselves  the  value  of 
Government  notes  can  be  maintained  at  the  par  of  gold.  One 
assumption  being  correct,  the  other  by  necessary  consequence  must 
be.  It  is  here  that  our  danger  lies.  Years  may  be  required  to  secure 
an  international  compact  for  the  use  of  silver  as  money.  Till  that 
great  stumbling-block  is  removed,  it  is  hardly  possible  that  any  steps 
by  way  of  reform  will  be  taken. 

THE     REMEDY. 

The  remedy :  A  return  to  a  symbolic  currency  alike  for  the 
Government  and  the  people.  What  is  the  situation? —  $830,000,000 
of  government  notes,  for  $346,000,000  of  which  only  a  small  pro- 
vision is  made,  and,  say,  $484,000,000  of  silver  notes  assumed  by  the 
Government  to  be  payable  in  gold,  their  constituent,  unless  converted 
into  gold,  being  wholly  unavailable  for  their  discharge. 

The  first  step,  to  quiet  alarm,  is  provision  for  funding  all  the 
notes  into  bonds  having  a  value  in  gold  equal  to  their  nominal 
amount.  The  terrible  tension  would  be  instantly  relieved.  Every 
man  and  every  industry  in  the  country  would  spring  to  its  feet.  The 
echo  of  the  acclaim  would  go  around  the  world,  everywhere  carry- 
ing hope  and  joy,  for  if  one  great  nation  like  our  own  be  in  distress  all 
alike  share.  Such  a  provision  would  be  the  equivalent  of  placing 
$830,000,000  of  gold  in  the  Treasury.  We  cannot  now  even 
deliberate  without  creating  alarm.  We  cannot  expose  the  situation 
without  the  danger  of  exciting  a  run  upon  the  Government  that 
would  force  it  into  a  suspension  of  specie  payment,  and  with  it  the 
people,  as  the  entire  monetary  fabric  of  the  country  rests  upon  that 
of  the  Government.  The  present  secure,  we  could  proceed  at 
leisure. 

The  second  step  would  be  to  return  to  the  people  the  power  of 
creating  everywhere  their  own  money  by  removing  the  tax  upon  the 
circulation  of  the  State  Banks.  Its  imposition  was  a  flagrant  act  of 
despotism  by  a  gross  infraction  of  the  Constitution.  The  State 


THE.    REMEDY.  169 

Banks  were  suppressed  that  a  crowning  wrong,  the  substitution  of  a 
currency  of  the  Government,  of  debt,  for  one  the  symbol  of  capital, 
might  be  perpetrated.  State  Banks  were  in  existence  before  the 
Constitution  was  framed.  Their  right  to  exercise  all  functions 
proper  to  them,  among  these  the  issue  of  notes,  was  supported  by 
precedent  of  seventy  years.  Mr.  Madison,  who  earnestly  contro- 
verted the  right  of  Congress  to  create  the  Bank  of  the  United  States, 
declared  that  precedent  of  twenty  years'  standing,  unsupported  by 
judicial  decisions,  settled  the  question  of  its  constitutionality.  Under 
our  dual  system  precedent  should  run  as  much  against  as  in  favor  of 
the  National  Government.  If  the  latter  could  purposely  by  a  tax  de- 
stroy one  of  the  functions  of  a  bank,  it  could  in  the  same  way  destroy 
every  other.  If  it  could  destroy  their  banks,  it  could  destroy  every 
function  necessary  to  the  existence  of  the  States.  The  elevation  of 
the  author  of  such  a  doctrine  as  this  to  the  Chief  Justiceship  of  the 
Supreme  Court  of  the  United  States  shows  how  little  we  have 
mastered  the  principles  upon  which  stable  and  well-ordered  govern- 
ments must  rest.  Not  to  be  controlled  by  precedent  established 
under  conditions  perfectly  free  is  to  have  no  anchorage  whatever. 
The  common  law  of  a  people  is  that  which  best  expresses  and  best 
guards  their  life.  Every  one  having  merchandise  fitted  for  consump- 
tion is  competent  to  issue  instruments,  of  the  value  of  gold,  for  its 
distribution.  All  the  qualification  required  to  issue  the  money  of 
commerce,  and  good  money,  is  the  instinct  that  demands  an  equiv- 
alent in  the  sale  of  a  horse.  If  the  people  of  Kansas  want  cheap 
money,  let  them  have  it  by  the  cart-load.  But  they  would  want  no 
such  thing  for  their  own  use.  The  provision  of  such  money  would 
always  be  for  people  other  than  themselves.  Whatever  the  kind, 
none  would  be  created  for  domestic  use  but  the  best.  They  could 
no  more  afford  to  have  poor  money  than  poor  instruments  for  the 
cultivation  of  their  farms.  The  people  of  Mississippi  might  well  be 
entrusted  with  the  creation  of  their  money.  As  they  no  longer 
have  the  power  to  swindle  outsiders,  they  will  be  very  careful  not  to 
swindle  themselves.  The  creation  of  their  own  money  might  well 
be  left  to  the  people  of  States  wholly  Populistic,  with  the  certainty 
that  they  will  be  most  scrupulous  in  providing  a  good  one.  It  is  only 
for  outsiders  that  base  money  is  ever  provided ;  but  in  this  matter 
outsiders  would  prove  quite  competent  to  take  care  of  themselves. 
When  it  is  analyzed  it  will  be  seen  that  one  kind  of  money  for  one 


1 7°  THE    REMEDY. 

class,  and  another  for  another,  is  a  thing  that  defies  human  ingenuity, 
for  the  reason  that  to  every  transaction  there  must  be  two  parties, 
each  one  demanding  an  equivalent  for  that  with  which  he  parts.  It 
is  upon  this  instinct  that  society  itself  rests.  The  people  of  the 
silver-producing  States  left  to  themselves  will  no  more  adopt  silver 
as  their  standard  money  than  those  of  Great  Britain,  for  the  reason 
that  a  better  and  less  costly  one  is  to  be  had ;  no  more  than  they 
would  adopt  iron  in  the  place  of  steel  in  their  mining  operations. 
A  proposition  that  the  people  of  Colorado  imitate  the  example  of 
the  United  States,  that  silver,  supported  by  gold,  be  their  money, 
would  be  received  by  them  with  jeers  of  derision  and  contempt. 
"We  are  not,"  would  be  the  universal  exclaim,  "such  shams  and 
fools  as  this."  With  a  proper  system  the  money  of  each  State 
would  result  from,  and  be  the  measure  of  the  value  of,  the  products 
of  each.  That  of  Colorado  would  measure  the  value  of  the  products 
of  her  mines ;  of  Kansas,  that  of  her  corn  and  hogs ;  of  the 
Dakotas,  that  of  their  wheat ;  of  Mississippi,  that  of  her  cotton ;  of 
Pennsylvania  and  Ohio,  that  of  their  coal  and  iron ;  of  the  Eastern 
States,  that  of  the  products  of  their  manufacturing  establishments  — 
all  the  equivalents  of  gold.  The  proper  measure  of  the  money  of 
every  commercial  community  like  the  United  States  is  the  value 
of  its  products,  whether  of  gold,  silver,  copper,  iron,  cotton,  or  corn. 
It  makes  no  difference  which.  What  more  can  be  asked  ?  The 
producers  of  silver  say  that  the  price  of  a  product  is  measured  by 
the  uses  to  which  it  can  be  put.  Very  true.  The  use  of  silver  as 
money  once  sustained  its  value.  But  its  use  has  been  superseded 
by  more  convenient  and  less  costly  instruments  of  exchange.  Its 
value  now  rests  upon  the  uses  to  which,  like  steel,  it  can  be  put  in 
the  economy  of  life.  Like  steel  it  is  now  merchandise,  not  money. 
By  no  possibility  can  it  be  restored  as  money  unless  inconvenient 
and  costly  methods  are  preferred  to  convenient  and  cheap  ones. 
The  value  of  money  must  be  intrinsic  or  representative.  When 
this  lesson  is  learned  the  people  of  the  South  and  West,  instead  of 
spending  their  time  in  railing  at  "consolidated  capital,"  will  seek  by 
proper  methods  to  become  "consolidated  capitalists  "  themselves. 
But  they  are  in  distress.  They  think  they  see  the  way  out  of  it  in 
the  situation  in  which  the  Government  is  placed  in  having  in  its 
vaults  some  400,000,000  of  silver  dollars,  full  legal  tender,  but 
worth  only  one-half  their  nominal  value.  If  these  could  be  had  at 


THE    REMEDY.  I*Jl 

their  real  value,  and  used  by  them  in  the  payment  of  debts  at  their 
nominal  value,  all,  they  think,  would  be  well.  But  in  obedience  to 
an  instinct  which  would  be  as  strong  with  them  the  moment  they 
began  to  reflect  and  act  for  themselves  as  with  the  people  of  Mas- 
sachusetts and  New  York,  they  would  soon  see  that  neither  silver 
nor  gold  was  to  be  their  ordinary  money ;  that  the  cost  of  the  pro- 
vision of  a  standard  of  value,  whether  silver  or  gold,  would  be  the 
same,  the  choice  turning  upon  the  relative  fitness  of  the  two.  But 
the  silver  dollars  in  the  Treasury  are  to  be  had  only  by  "bursting" 
the  Government.  The  people  will  never  take  any  steps  in  such 
direction,  always  preferring  government  notes  to  gold.  The  classes 
that  will  "  burst "  the  Government,  if  this  is  to  be  done,  will  not  be 
the  people,  but  drawers  of  exchange,  and  great  bankers,  in  position 
to  see  how  the  current  is  running  and  take  instant  advantage  of  it. 

The  third  step  would,  by  necessary  sequence,  be  the  return  to  the 
National  Banks  of  the  bonds  put  up  by  them  as  security  for  their 
notes.  As  these  and  the  State  Banks  began  the  issue  of  notes,  the 
holders  of  those  of  the  Government  would  instinctively  begin  their 
conversion  into  its  bonds,  the  conversion  going  on  in  ratio  as  the 
money  of  commerce  was  supplied  to  take  their  place. 

When  such  a  stage  in  the  process  of  reform  is  reached  the  inquiry 
would  naturally  suggest  itself,  Why,  if  the  money  of  commerce  is  to 
be  that  of  the  people,  should  it  not  be  that  of  the  Government, 
issued  by  a  bank  of  its  own  creation?  The  National  and  State 
Banks  might  indeed  supply  an  adequate  amount,  but  Government 
would  want  something  more  —  a  custodian  of  its  revenues  which 
would  be  receivable  in  its  notes  and  disbursed  by  means  of  cheques 
upon  it,  precisely  as  the  National  Banks  now  serve  as  the  custodians 
of  the  money,  utilized  by  means  of  cheques,  of  the  people.  A  sur- 
plus of,  say,  $50,000,000  in  the  Treasury  would  be  hardly  entrusted 
to  a  bank  in  the  city  of  New  York,  the  great  point  of  the  collection 
of  the  revenues,  the  share  capital  of  none  exceeding  $5,000,000. 
To  distribute  the  amount  among  half  a  dozen  of  the  strongest  insti- 
tutions would  be  a  favoritism  that  would  hardly  be  tolerated.  To 
deal  out  a  portion  to  each  in  ratio  to  its  share  capital  would  involve 
the  opening  of  a  great  number  of  accounts,  some  with  banks  hardly 
to  be  trusted  with  the  public  moneys.  The  State  Banks,  if  eman- 
cipated from  the  burdens  now  imposed  upon  them,  would  properly 
come  in  for  their  share.  But  State  Banks,  the  right  to  issue  notes 


172  THE    REMEDY. 

restored,  would  be  as  free  from  the  direct  control  of  the  Govern- 
ment as  they  were  before  the  establishment  of  the  present  Safety 
Fund  System.  Institutions  over  which  the  Government  has  no 
direct  control  should  certainly  not  be  entrusted  with  its  funds.  The 
custodian  of  these  should  be  always  subject  to  restrictions  which 
would  not  only  render  loss  impossible,  but  which  would  make  the 
issues  of  all  other  banks  as  good  as  its  own.  As  a  National  Bank 
would  necessarily  in  the  course  of  business  receive  on  deposit,  and 
in  the  payment  of  the  revenues,  the  notes  of  all  issuers  and  cheques 
upon  them,  it  would  for  its  own  safety  require  the  daily  discharge  in 
gold  of  all  balances  found  in  its  favor.  By  such  means  the  restric- 
tions imposed  upon  it  would  in  effect  be  imposed  upon  all  other 
issuers.  A  perfectly  safe  currency  would  by  such  means  be  every- 
where provided.  As  the  National  Bank  would  make  loans  based 
upon  the  deposits  of  the  Government  for  which  the  latter  had  no 
immediate  use,  as  upon  those  of  its  ordinary  customers,  all  balances 
that  could  be  safely  spared  would  be  promptly  returned  to  the  channels 
of  production  and  trade  from  which  they  were  drawn,  not  a  dollar 
being  allowed  to  lie  idle.  With  a  National  Bank,  the  Independent 
Treasury  would  naturally  be  discontinued  as  wholly  superfluous,  the 
bank  assuming  all  its  functions,  the  saving  being  a  half  a  million 
annually.  By  means  of  it  metallic  money  as  capital  would,  except 
in  the  form  of  small  coins,  be  wholly  discharged  from  the  operations 
alike  of  Government  and  people.  From  the  restrictions  imposed 
upon  it,  and  through  it  upon  all  other  issuers,  no  balances  could 
arise  either  in  the  foreign  or  domestic  trade  of  the  country  requir- 
ing any  considerable  provision  of  gold  for  their  discharge. 

The  reasoning  here  is  without  a  flaw ;  what  is  better,  it  is  sup- 
ported by  precedent  of  forty  years.  Why  was  it  that  a  system  so 
beneficent  in  its  results  was  overthrown  ?  From  fear  of  "  consolidated 
capital,"  that  arch  enemy  of  the  race,  certain,  if  allowed  to  have  its 
way,  to  reduce  the  great  mass  of  the  people  to  the  condition  of 
serfs  and  slaves  !  In  the  second  Bank  capital  was  consolidated  on 
a  vast  scale.  From  its  alleged  use  in  oppressing  the  people  it  was 
overthrown.  From  its  overthrow  General  Jackson  was  hailed  as  the 
savior  of  his  country.  From  that  time  the  danger  of  "  consolidated 
capital "  was  the  constant  theme  of  the  great  political  party  which 
so  long  dominated  the  country.  Mr.  Van  Buren,  who  immediately 
succeeded  General  Jackson,  thanked  Heaven  in  one  of  his  messages 


THE    REMEDY.  1^3 

that  the  great  monster  was  at  last  under  the  sod.  It  was  the  con- 
stant theme  of  succeeding  presidents  down  to  and  including  Mr. 
Buchanan.  With  Mr.  Voorhees  the  oppressions  of  "  consolidated 
capital"  had  been  such  that  the  value  of  a  day's  work  was  reduced 
to  ten  cents  and  that  of  a  horse  to  ten  dollars  !  With  Mr.  Carlisle, 
after  fifteen  years  of  weary  warfare  with  "  consolidated  capital,"  the 
people  stood  on  the  very  verge  of  financial  ruin.  But  in  describing 
the  oppressions  of  this  terrible  monster  Mr.  Cleveland  bore  off  the 
palm.  In  his  annual  message  for  1888  he  said  : 

Our  cities  are  the  abiding  places  of  wealth  and  luxury.  Our  manufactures 
yield  fortunes  never  dreamed  of  by  the  fathers  of  the  republic.  Our  business 
men  are  madly  striving  in  the  race  for  riches,  and  the  immense  aggregations  of 
capital  outreach  the  imagination  in  the  magnitude  of  their  undertakings.  By  a 
more  careful  scrutiny  we  find  the  wealth  and  luxury  of  our  cities  mingled  with 
poverty  and  wretchedness  and  unremunerative  toil.  We  discover  that  the  fort- 
unes realized  by  our  manufacturers  are  no  longer  solely  the  reward  of  sturdy 
industry  and  enlightened  foresight,  but  that  they  result  from  the  discriminating 
favor  of  the  Government,  and  are  largely  built  up  by  undue  exactions  from  the 
masses  of  our  people.  The  gulf  between  employers  and  employed  is  constantly 
widening,  and  classes  are  rapidly  forming,  one  comprising  the  very  rich  and 
powerful,  while  in  another  are  found  the  toiling  poor.  As  we  view  the  achieve- 
ments of  aggregated  capital  we  discover  the  existence  of  trusts,  combinations, 
and  monopolies.  While  the  citizen  is  struggling  far  in  the  rear  or  is  trampled  to 
death  under  an  iron  heel,  corporations,  which  should  be  the  carefully  restrained 
creatures  of  law  and  the  servants  of  the  people,  are  fast  becoming  the  people's 
masters. 

Never  before  in  history  was  such  a  picture  drawn,  and  that  by  a 
president  of  a  great  republic,  of  avarice  and  brutality  on  one  side 
and  of  degradation  and  suffering  on  the  other.  If  true,  it  shows  a 
republic  to  be  the  worst  form  of  government,  being  wholly  unable  to 
protect  the  people,  stamped  to  death  under  the  iron  heel  of  selfish- 
ness and  greed.  But  is  the  picture  true  ?  How  is  "  consolidated 
capital,"  from  the  experience  of  its  use,  viewed?  Suppose  a  charter 
for  a  National  Bank,  providing  for  a  capital  $100,000,000,  to  be 
offered  to  the  highest  bidder.  Chicago  would  instantly  step  forward 
with  her  millions  to  secure  the  prize  which  in  her  estimation  would 
stamp  her  as  the  imperial  city  of  the  world.  The  most  rampant  Popu- 
list would  vie  with  the  hardest-headed  man  of  affairs  in  his  earnestness 
and  contributions.  Not  a  suggestion  would  arise  from  any  quarter 
that  the  bank  could  be  an  instrument  of  oppression,  or  that  by  means 
of  it  any  private  ends  could  be  secured.  A  single  common  and 


1 74  THE    REMEDY. 

honorable  impulse  would  be  that  of  every  citizen  from  the  highest  to 
the  lowest  —  the  honor  and  greatness  of  Chicago  !  No  one  not  entitled 
to  the  money  of  the  bank  could  get  a  dollar  of  it.  No  one  who  could 
not  offer  an  equivalent  therefor  could  get  a  dollar  of  it.  For  a  bank 
not  to  demand  an  equivalent  when  a  loan  is  made  is,  ordinarily,  to 
make  a  loss  equal  to  the  amount  —  an  offence  against  society,  as  its 
welfare  is  in  ratio  to  the  amount  of  capital  usefully  employed.  As 
the  demand  for  its  money,  and  consequently  the  returns  upon  it, 
would  be  in  ratio  as  the  people  were  industrious,  intelligent,  well- 
to-do,  »  and  free,  the  bank  would  have  every  motive  to  promote 
their  industry,  intelligence,  welfare,  and  freedom.  It  would  be  a 
moral  institution  of  high  value  in  the  example  set  by  it  for  all  others, 
as  well  as  an  indispensable  one  in  affairs. 

As  the  act  for  the  creation  of  the  bank  would  provide  for  numerous 
branches,  the  same  contest  would  arise  for  their  possession  as  for  that 
of  the  parent  bank.  If  ten  branches  were  assigned  to  Illinois,  fifty 
places  would  be  earnest  competitors  for  one  of  them,  well  under- 
standing the  benefits  that  would  arise  therefrom  in  the  increased 
provision  for  symbolizing  their  products  as  well  as  from  the  prestige 
and  preeminence  it  would  secure.  In  the  struggle  to  secure  a  branch, 
political  distinctions,  so  pronounced  in  other  matters,  would  be 
wholly  forgotten. 

As  on  a  great,  so  on  a  small  scale.  From  the  sense  of  the  advan- 
tages derived  from  them  our  present  National  Banks  are  eagerly 
welcomed  by  every  community  throughout  the  land.  In  welcoming 
these  all  political  distinctions  are  also  forgotten.  All  make  contribu- 
tions for  their  establishment  according  to  their  means.  They  imme- 
diately become  the  custodians  of  the  surplus  cash  of  the  people, 
their  issues  serving  as  instruments  for  turning  into  potential  money 
all  products  prepared  for  market.  Their  management  is  intrusted 
to  boards  of  directors,  to  "  committees  of  safety,"  composed  of 
discreet  and  prosperous  citizens  familiar  with  the  character  and 
means  of  every  person  likely  to  apply  for  loans.  The  "  committees 
of  safety  "  are  usually  large  owners  in  the  share  capital  of  the  banks 
whose  operations  they  conduct,  a  guarantee  for  their  proper  manage- 
ment. Any  loss  that  may  be  made  comes  largely  out  of  their  own 
pockets.  With  such  a  committee  always  on  the  alert,  loans  would 
seldom  be  made  for  the  payment  of  which  adequate  provision  in 
merchandise  was  not  previously  provided.  Such  institutions  are  so 


THE    REMEDY. 


'75 


essential  to  the  general  welfare  that  the  appointments  of  no  consid- 
erable community  are  complete  without  them.  Their  success  is  a 
matter  of  satisfaction  and  pride  to  all,  whether  or  not  they  have  any 
interest  in  them. 

With  a  proper  system,  that  is,  with  a  National  Bank,  free  issue  to 
be  allowed  to  all  others,  State  and  National,  it  is  not  probable  that 
one-twentieth  part  of  the  currency  would  be  supplied  by  the  Na- 
tional one,  each  section  of  the  country  creating  its  own.  No 
monopoly,  consequently,  of  issue  could  exist. 

And  how  about  manufacturing  establishments  in  which  capital 
must  be  massed  on  a  vast  scale,  and  remain  massed  in  corporations 
having  a  perpetual  existence,  being  dedicated  to  purposes  as  endur- 
ing as  society  itself?  There  is  not  a  community  in  the  United 
States  in  which  such  works  are  not  warmly  welcomed  by  gifts  in  the 
form  of  sites,  material,  money,  or  the  remission  of  taxes  for  a  series 
of  years,  the  degree  of  welcome  being  in  ratio  to  the  amount  of 
capital  to  be  employed.  They  at  once,  wherever  they  go,  set  every- 
thing in  motion,  add  largely  to  the  value  of  real  property,  give  new 
opportunities  for  the  employment  of  labor  at  rates  far  above  those 
which  had  previously  prevailed,  and  create,  at  largely  increased 
prices,  a  domestic  market  for  products  which  previously  had  none. 
They  must  be  large  purchasers  of  labor  and  material  from  those 
under  no  obligation  to  make  any  return  in  kind.  There  is  hardly  a 
municipality  in  the  Northern  States  that  is  not  authorized  by  law  to 
offer  inducements  of  the  kind  described  from  a  sense  of  the  advan- 
tages to  be  secured.  In  welcoming  them  all  party  distinctions  are 
forgotten.  The  people  of  Kansas,  were  they  able,  could  well  afford 
to  contribute  $100,000,000  for  the  purpose  of  attracting  manufact- 
uring establishments  which  would  supply  their  wants  by  direct 
exchange  for  the  products  of  their  soil.  A  sense  of  their  value  is 
rapidly  travelling  southward,  the  State  of  Alabama  having  recently 
authorized  her  municipalities  to  offer  substantial  aid  to  secure  them. 
While  the  necessary  effect  of  every  establishment  of  the  kind  is  to 
advance .  the  price  of  labor  and  of  the  products  of  the  community 
in  which  they  are  domiciled,  its  tendency,  from  an  increased  supply 
and  from  the  improved  methods  brought  into  use,  is  always  to  reduce 
the  price  of  its  peculiar  product.  Take  the  case  of  steel.  There 
is  no  branch  of  industry  which  requires  a  greater  massing  of  capital  ; 
there  is  none  in  which  greater  skill  and  training  are  required.  Its 


176  THE    RpMEDY. 

manufacture  in  this  country  since  1862  has  been  protected  by  pro- 
hibitory duties.  If  monopoly  or  oppression  were  possible  anywhere 
it  would  be  here.  Yet  with  the  most  persistent  efforts  of  manu- 
facturers to  maintain  them,  prices  have  fallen  from  $140  the  ton  in 
gold,  in  1867,  to  $20  in  1897.  The  increase  of  product  in  the  same 
period  has  been  from  17,000  to  6, 1 14,834  tons.  In  the  same  period 
the  wages  of  labor  employed  in  its  manufacture  have  been  doubled 
from  the  enormously  increased  demand  therefor.  From  their  fall  in 
price  steel  have  taken  the  place  of  iron  rails  on  our  railroads,  the  gain 
to  the  public  being  many  hundred  millions  annually.  The  example, 
a  striking  one,  is  true  of  every  other  department  of  production. 
Every  one  seeks  to  get,  as  he  should,  the  most  out  of  his  business.  If 
he  begins  with,  or  realizes,  large  profits,  competition  is  certain  speed- 
ily to  reduce  them  to  the  common  level,  as  capital,  the  supply  being 
unlimited,  eagerly  seeks  investments  that  will  yield  five  per  cent. 
One  cannot  enter  upon  any  branch  of  production  on  a  large  scale 
and  make  a  success  in  it  without  reducing  the  price  of  the  product, 
being  thereby  a  public  benefactor.  He  is  subject  to  a  law  higher 
than  his  own.  The  more  intent  upon  gain,  the  more  effectually  does 
he  serve  others  rather  than  himself.  In  the  nature  of  things  it  is 
impossible  that,  in  a  country  like  the  United  States,  where  the  field 
is  open  to  all,  corporations  should  oppress,  though  they  may  not 
reduce  prices  fast  enough  to  suit  the  popular  idea. 

As  with  manufacturing  establishments,  so  with  railroads  entered 
upon  as  an  investment  of  capital.  The  advantage  to  those  who 
have  no  pecuniary  interest  in  them  is  fifty-fold  greater  than  to 
their  promoters.  They  create  values  on  an  enormous  scale  by 
opening  markets  for  products  otherwise  without  them.  In  some 
systems  hundred  of  millions  of  dollars  are  massed  —  the  greater 
the  amount,  the  better  the  service  and  the  less  the  charge.  Were 
monopolies  possible  it  would  be  in  such  lines  as  the  New  York 
Central  and  Pennsylvania,  but  there  is  hardly  a  pound  of  freight 
moved  by  either  that  is  not  fiercely  competed  for  by  numer- 
ous other  lines.  So  great  have  been  the  improvements  in  the 
methods  used,  and  so  fierce  the  competition,  that  there  is  not  a 
railroad  in  the  United  States  that  has  not,  within  a  comparatively 
short  period,  with  an  enormous  increase  of  traffic,  in  some  cases 
five  or  ten  fold,  been  compelled  to  reduce  rates  on  merchandise  to 
one-quarter  those  charged  twenty-five  years  ago ;  and  to  such  an 


THE    REMEDY.  I  J>] 

extent  that  the  return  on  the  investments  in  these  works  is  far  below 
the  average  of  those  in  other  departments  of  industry  or  enterprise. 
The  most  promising  field  of  all  at  the  outset  is  that  in  which  capital 
has  suffered  the  most.  The  only  function  in  a  government  like  that 
of  the  United  States,  where  the  supply  of  capital  and  raw  material  is 
unlimited,  is  to  see  to  it  that  opportunity  is  alike  open  to  all.  With 
such  provision  society  may  rest  assured  that  capital  will  be  always 
working  for  its  welfare,  and  never  for  its  harm ;  that  it  is  amply 
protected  by  a  law  far  higher  and  more  exacting  than  any  of  human 
contrivance. 

It  may  be  urged  that  corporations  will  combine  to  put  up  prices. 
They  cannot  by  combination  put  up  prices  so  that,  where  the  con- 
ditions, as  in  the  United  States,  are  perfectly  free,  profits  in  any  line 
will  exceed  the  average  of  other  departments  of  enterprise  and  in- 
dustry, as  capital,  the  supply  of  which  is  unlimited,  always  flows  in 
the  direction  which  promises  the  best  return.  It  is  for  the  interest 
of  the  public  that  corporations,  by  restricting  production,  for  exam- 
ple, should  combine  so  that  profits  in  any  one  line  may  not  fall  below 
the  average.  If  from  want  of  adequate  returns  any  go  out  of  opera- 
tion, the  survivors,  the  field  remaining  to  them,  will  naturally  put 
up  prices.  But  the  moment  that  their  profits  exceed  the  general 
average,  competition  comes  in  as  the  natural  and  inevitable  correc- 
tive. It  is  better  for  society  that  the  number  in  operation  be  main- 
tained than  that  any  should  be  compelled  to  go  out  of  business,  their 
places  in  time  to  be  supplied  by  new  ones,  involving  new  outlays  of 
capital  to  meet  the  increase  of  consumption  by  a  steadily  increasing 
population.  Society  need  not  be  under  the  slightest  concern  that 
all  service,  so  far  as  it  is  rendered  by  capital,  whatever  the  form,  will 
not  be  at  the  lowest  cost.  That  side  of  life,  without  any  interposi- 
tion of  Government,  is  wholly  secure. 

There  is  undoubtedly  a  great  deal  of  ill-gotten  capital  that  most 
offensively  flaunts  itself.  But  for  such  the  laws  enacted  by  the 
people  are  chiefly  responsible.  Capital  honestly  acquired  and 
honestly  employed  is  an  essential  condition  of  human  progress. 
Vast  fortunes  have  been  made  by  those  who  control  improved  proc- 
esses in  production  and  distribution.  The  law  here  stands  for  twenty 
years  their  friend.  But  where  one  is  the  measure  of  their  gain,  a 
thousand  is  that  of  the  public,  of  which  the  case  of  steel  may 
again  be  cited.  Vast  fortunes  are  made  by  combination  by  which 


jyS  THE    REMEDY. 

capital,  in  ratio  to  the  result  secured,  is  discharged  from  use,  the  bene- 
fit inuring  far  more  to  the  public  than  to  those  who  exploit  the  new 
methods.  The  laying  by  of  a  dollar  a  day  is  equivalent  to  a  fortune 
at  the  end  of  a  long  life.  The  beneficence  of  capital  is  shown  by  the 
struggle  for  its  possession  by  all  engaged  in  production  and  distribu- 
tion, more  being  made  by  its  use  than  the  charge  for  its  use.  When 
massed  in  corporations  pursuing  legitimate  industries,  it  is  always 
beneficent,  as  in  ratio  as  it  is  massed  is  cost  of  production  reduced, 
the  demand  for  labor,  the  only  factor  short  in  supply,  and  with  it 
the  compensation,  being  greatly  increased.  Much  discontent  still 
prevails  by  those  whose  hours  of  labor  have  been  shortened,  their 
compensation  being  largely  increased,  the  price  of  all  articles  essen- 
tial to  their  comfort  and  welfare  being  greatly  reduced.  Contrasts 
in  society  still  exist  and  will  exist  so  long  as  difference  in  faculty  or 
desert  exists.  But  there  must  be  incentives  to  an  industrious  and 
honorable  life  in  its  rewards.  Without  them  society  would  sink  to 
the  level  from  which  it  rose.  The  lesson  to  be  learned  by  those  who 
have  excelled  in  the  race  is  to  extend  a  helping  hand  to  those  less 
fortunate  than  themselves.  But  this  opens  a  chapter  not  here  to  be 
entered  upon. 

To  conclude  :  In  discussing  the  currency  we  must  start  from  the 
premise  that  paper  money,  in  some  form,  is  always  to  be  that  of  our 
preople,  as  it  must  be  that  of  every  great  commercial  community. 
No  other  kind  can  be  afforded.  No  matter  how  unsound  it  may  be 
there  will  be  no  thought  of  returning  to  metallic  money,  the  use 
of  which  would  reduce  transactions  to  one-fifth  or  one-tenth  their 
present  volume.  When  paper  money  is  most  depreciated  a  better 
kind  will  always  be  sought,  but  never  a  return  to  one  of  capital. 

The  second  proposition  is  that  the  money  of  the  people  must  be 
that  of  the  Government.  There  may  be  a  good  currency  without 
the  interposition  of  law.  Every  person  possessed  of  merchandise 
is  competent  to  issue  instruments  for  its  distribution,  and  would 
issue  them  but  for  the  reason  that  a  better  way  is  provided  by 
means  of  corporations  dedicated  to  a  particular  purpose  and  not 
subject  to  the  risks  of  production  and  trade,  their  issues  to  be 
measured  by  the  nominal  value  of  the  merchant's  bills  held  by 
them.  Good  local  currencies  may  be  provided,  but  with  all  the 
safeguards  which  State  legislation  and  careful  supervision  would 


THE    REMEDY. 


179 


throw  round  them,  the  National  Government  could  not  directly  com- 
mit itself  to  their  use.  It  must  have  an  institution  of  its  own 
creation  to  stand  between  it  and  all  other  issuers  throughout  the 
country  —  one  which  would  in  the  course  of  business  receive  the 
notes  and  credits  of  all  other  issuers  in  the  payment  of  the  public 
revenues,  on  deposit,  and  in  the  payment  of  its  bills.  The  National 
Bank  would  prefer  to  have  its  bills  paid  and  revenues  collected  in 
the  issues  of  other  banks  rather  than  its  own,  as  in  ratio  as  the 
former  were  received  its  own  would  remain  in  circulation.  It 
would  protect  itself  against  loss  by  demanding  that  all  balances 
arising  in  its  favor  be  daily  discharged.  By  the  provisions  de- 
scribed the  issues  of  every  bank  throughout  the  country,  in  good 
standing,  would,  in  effect,  be  received  in  the  payment  of  the  rev- 
enues, payments  being  made  in  kind,  as  it  were,  in  the  symbol  of 
the  particular  product  of  the  section  where  they  were  collected.  A 
currency  common  alike  to  Government  and  people  would  thus  be 
provided ;  a  currency  never  in  excess  ;  always  retired  by  its  use  ;  a 
currency  which,  through  the  value  of  its  constituent,  would  wholly 
supersede  gold,  metallic  money,  as  the  ordinary  instrument  of  ex- 
change: If  gold  were  wanted  by  the  Government  or  people  it  would 
be  supplied  by  the  banks  out  of  their  reserves.  With  a  National 
Bank  restricted  in  its  discounts  to  bills  of  exchange,  the  Govern- 
ment would  have  no  more  occasion  to  concern  itself  about  the 
solvency  of  the  currency  than  about  the  solvency  of  the  makers  of 
bills  upon  which  it  was  based ;  no  more  than  about  the  solvency 
of  drawers  of  exchange,  or  of  railroad  or  manufacturing  corpora- 
tions, as  no  currency  that  was  not  retired  by  its  use,  the  crucial  test, 
could  get  into  circulation.  Successful  issuers  should  no  more  be 
compelled  to  make  up  the  losses  of  the  unsuccessful,  than  success- 
ful merchants  should  make  up  those  of  the  unsuccessful  and  incom- 
petent ones.  If  the  principle  upon  which  the  national  banking 
system  is  based  be  correct,  then  Government  should  in  the  same 
way  place  itself  behind  every  industry  and  enterprise  in  the  land. 
With  a  National  Bank  full  and  adequate  provision  for  a  sound  cur- 
rency would  be  made  previous  to  its  issue.  It  is  easy  to  prevent  the 
perpetration  of  a  great  wrong.  It  may  be  impossible  to  repair  its 
effects.  We  are  oppressed  by  a  great  wrong  that  should  never 
have  been  committed.  Jackson  did  his  work  so  well  that  as  a  peo- 
ple we  have  never  recovered  our  sense  or  reason,  so  completely  was 


REMEDY. 

the  example  of  the  past  effaced  from  memory.  That  we  should  have 
dethroned  Hamilton  and  put  Jackson  in  his  place  as  our  oracle  and 
mentor  in  the  matter  of  money  shows  our  immeasurable  folly,  and 
how  incapable  we  are  to  deal  with  matters  that  most  intimately  con- 
cern our  highest  welfare.  The  necessary  consequence  has  been  that 
our  history,  so  far  as  money  has  been  concerned,  from  the  time  of 
Jackson  has  been  one  of  alternations,  on  a  vast  scale,  of  farce  and 
tragedy. 

Why  should  not  a  return  be  made  to  a  currency  common  alike  to 
government  and  people  —  a  currency  founded  in  the  very  nature  of 
things,  the  soundness  and  value  of  which  have  been  demonstrated  by 
precedents  of  forty  years,  and  which  can  only  be  provided  by  a 
National  Bank?  In  the  way  stand  the  history  and  traditions  of  a 
great  party,  now  broken  into  two  wings,  that  its  creation  transcends 
the  power  of  the  Government,  its  existence  being  incompatible  with 
the  liberties  of  the  people.  There  is  no  evidence  that  either  wing 
has  receded  from  a  position  which  both  in  common  so  long  held. 
With  the  Sound  Money  wing  of  the  Democracy,  the  creation  of  a 
National  Bank  would  be  an  act  of  "  Paternalism  "  by  no  means  to  be 
permitted.  With  it  salvation  is  to  come,  if  at  all,  from  accident, 
from  drifting,  not  from  forecast  or  method.  The  Free  Coinage  wing 
wants  money  that  costs  little,  the  less  the  better,  but  issued  in  ratio 
to  the  needs  of  the  people.  The  money  of  banks  could  be  had 
only  at  its  value.  Hence  all  of  it  must  be  issued  by  the  Government. 

The  great  party  now  in  control  insists,  with  plenty  of  unmeaning 
platitudes,  that  the  present  situation  be  maintained  ;  that  all  the  money 
we  have  is  good  money,  and  that  all  that  is  wanted  is  a  little  patching 
by  which  its  value  may  be  no  longer  "  threatened.  "  Should  not  the 
use  of  such  an  ominous  word  have  suggested  to  its  chief  that  money 
the  value  of  which  can  be  threatened  is  not  good  money,  and  the 
remedy  for  money  that  is  not  good  ?  With  him  all  kinds  now  in  circu- 
lation, gold,  silver,  issues  of  Government  and  banks,  have  an  equal 
standing  in  the  courts  of  reason  and  law.  There  is  no  hint  of  refor- 
mation in  its  proper  sense.  So  far  as  Congress  is  concerned  its  atten- 
tion is  engrossed  by  the  crowning  piece  of  tomfoolery  of  modern 
times,  Bimetallism,  —  the  Senate,  by  unanimous  vote,  declaring  itself 
in  its  favor,  and  the  House  by  a  vote  of  279  to  4.  In  the  meantime 
matters  are  steadily  going  from  bad  to  worse.  The  tariff  is  its  pan- 
acea for  all  evils.  It  is  well  to  have  the  National  Government  self- 


THE    REMEDY.  jSi 

supporting.  Had  it  been  so  for  the  last  four  years,  the  greater  part 
of  the  legal  tender  notes  could  have  been  safely  locked  up  in  the 
Treasury.  But  the  new  tariff,  while  it  will  improve,  will  not  restore 
the  situation.  Without  a  reform  of  the  currency,  the  clouds,  now 
deep  on  the  horizon,  will  only  grow  darker  and  more  portentous. 
One  that  is  neither  capital  nor  the  symbol  of  capital  always  exacts 
a  penalty,  and  when  issued  on  a  vast  scale,  an  enormous  one.  The 
penalty  is  not  so  much  the  final  catastrophe  as  the  long  and  linger- 
ing illness  which  necessarily  precedes  it. 

There  is  one  bright  spot  on  the  horizon.  The  Secretary  of  the 
Treasury  is  a  man  trained  in  affairs,  and  should  know  the  difference 
between  palaver  and  "  cash  down."  He  may  not  be  a  Hamilton, 
but  if  he  restore  the  work  of  Hamilton  he  will  be  second  only  to 
his  illustrious  predecessor  in  deserving  and  receiving  the  grateful 
homage  of  an  emancipated  people. 


NOTES    AND    ILLUSTRATIONS. 


THE    SILVER    RECOIXAGE    IN    ENGLAND. 

In  1696  the  silver  currency  of  England  (the  only  one  then  in 
use)  had  become  so  reduced  in  value,  from  clipping  and  wear,  as  to 
cause  the  greatest  inconvenience  in  all  the  operations  of  society. 
The  coins  in  use,  no  matter  how  light,  could  still  be  used  in  the 
payment  of  debts  and  of  the  taxes  due  the  government.  The  latter 
attempted  for  a  long  time  to  correct  the  evil,  by  causing  large 
quantities  of  silver  to  be  coined  of  the  standard  weight  and  fineness  ; 
but  as  the  old  coins,  with  one-quarter  or  one-fifth  less  of  pure  metal, 
were  used  as  currency  equally  with  the  new,  the  latter  were  imme- 
diately taken  up  and  melted  down,  or  exported  at  their  value  as 
bullion  or  merchandise,  so  that  no  progress  whatever  was  made  in 
remedying  an  evil  which  had  become  well-nigh  insupportable. 

"  The  financiers  of  that  age,"  says  Macaulay,  in  his  graphic  picture  of  it, 
"  seem  to  have  expected  that  the  new  money,  which  was  excellent,  would  soon 
displace  the  old  money,  which  was  much  impaired.  Yet  any  man  of  plain  under- 
standing might  have  known  that,  when  the  State  treats  perfect  coin  and  light 
coin  as  of  equal  value,  the  perfect  coin  will  not  drive  the  light  coin  out  of  circu- 
lation, but  will  itself  be  driven  out.  A  clipped  crown,  on  English  ground, 
went  as  far  in  the  payment  of  a  tax  or  a  debt  as  a  milled  crown.  But  the  milled 
crown,  as  soon  as  it  had  been  flung  into  the  crucible  or  carried  across  the 
channel,  became  much  more  valuable  than  the  clipped  crown.  It  might  there- 
fore have  been  predicted,  as  confidently  as  anything  can  be  predicted  which 
depends  on  the  human  will,  that  the  inferior  pieces  would  remain  in  the  only 
market  in  which  they  could  fetch  the  same  price  as  the  superior  pieces  ;  and  that 
the  superior  pieces  would  take  some  form  or  fly  to  some  place  in  which  some 
advantage  could  be  derived  from  their  superiority. 

"  The  politicians  of  that  age,  however,  generally  overlooked  these  very  obvious 
considerations.  They  marvelled  exceedingly  that  everybody  should  be  so  per- 
verse as  to  use  light  money  in  preference  to  good  money.  In  other  words,  they 
marvelled  that  nobody  chose  to  pay  twelve  ounces  of  silver  when  ten  ounces 
would  serve  the  turn.  The  horse  at  the  Tower  still  paced  his  rounds.  Fresh 
wagon-loads  of  choice  money  still  came  forth  from  the  mill  ;  and  still  they 
vanished  as  fast  as  they  appeared.  Great  masses  were  melted  down  ;  great 
masses  exported  ;  great  masses  hoarded  ;  but  scarcely  one  new  piece  was  found  in 


184  THE    SILVER    RECOINAGE    IN    ENGLAND. 

the  till  of  a  shop,  or  in  the  leathern  bag  which  the  farmer  carried  home  from  the 
cattle  fair.  In  the  receipts  and  payments  of  the  Exchequer  the  milled  money 
did  not  exceed  ten  shillings  in  a  hundred  pounds.  A  writer  of  that  age  mentions 
the  case  of  a  merchant  who,  in  the  sum  of  thirty-five  pounds,  received  only  a 
single  half-crown  in  milled  silver.  .  .  . 

"The  evils  produced  by  this  state  of  the  currency  were  not  such  as  have 
generally  been  thought  worthy  to  occupy  a  prominent  place  in  history.  Yet  it 
may  well  be  doubted  whether  all  the  misery  which  had  been  inflicted  on  the 
English  nation  in  a  quarter  of  a  century  by  bad  kings,  bad  ministers,  bad 
parliaments,  and  bad  judges  was  equal  to  the  misery  caused  in  a  single  year  by 
bad  crowns  and  bad  shillings.  Those  events  which  furnish  the  best  themes  for 
pathetic  or  indignant  eloquence  are  not  always  those  which  most  affect  the 
happiness  of  the  great  body  of  the  people.  The  misgovernment  of  Charles  and 
James,  gross  as  it  had  been,  had  not  prevented  the  common  business  of  life  from 
going  steadily  and  prosperously  on.  While  the  honor  and  independence  of  the 
State  were  sold  to  a  foreign  power,  while  chartered  rights  were  invaded,  while 
fundamental  laws  were  violated,  hundreds  of  thousands  of  quiet,  honest,  and 
industrious  families  labored  and  traded,  ate  their  meals  and  lay  down  to  rest,  in 
comfort  and  security.  Whether  Whigs  or  Tories,  Protestants  or  Jesuits  were 
uppermost,  the  grazier  drove  his  beasts  to  market ;  the  grocer  weighed  out  his 
currants  ;  the  draper  measured  out  his  broadcloth  ;  the  hum  of  buyers  and  sellers 
was  as  loud  as  ever  in  the  towns  ;  the  harvest-home  was  celebrated  as  joyously 
as  ever  in  the  hamlets  ;  the  cream  overflowed  the  pails  of  Cheshire  ;  the  apple- 
juice  foamed  in  the  presses  of  Herefordshire  ;  the  piles  of  crockery  glowed  in  the 
furnaces  of  the  Trent  ;  and  the  barrows  of  coal  rolled  fast  along  the  timber  rail- 
way of  the  Tyne.  But  when  the  great  instrument  of  exchange  became  thoroughly 
deranged,  all  trade,  all  industry,  were  smitten  as  with  a  palsy. 

"  Since  the  Revolution  the  state  of  the  currency  had  been  repeatedly  discussed 
in  Parliament.  In  1689  a  committee  of  the  commons  had  been  appointed  to 
investigate  the  subject,  but  had  made  no  report.  In  1690  another  committee  had 
reported  that  immense  quantities  of  silver  were  carried  out  of  the  country  by 
Jews,  who,  it  was  said,  would  do  anything  for  profit.  Schemes  were  formed  for 
encouraging  the  importation  and  discouraging  the  exportation  of  the  precious 
metals.  One  foolish  bill  after  another  was  brought  in  and  dropped.  At  length, 
in  the  beginning  of  the  year  1695,  the  question  assumed  so  serious  an  aspect  that 
the  Houses  applied  themselves  to  it  in  earnest.  The  only  practical  result  of  their 
deliberations,  however,  was  a  new  penal  law,  which  it  was  hoped  would  prevent 
the  clipping  of  the  hammered  coin  and  the  melting  and  exporting  of  the  milled 
coin.  It  was  enacted  that  every  person  who  informed  against  a  clipper  should 
be  entitled  to  a  reward  of  forty  pounds,  that  every  clipper  who  informed  against 
two  clippers  should  be  entitled  to  a  pardon,  and  that  whoever  should  be  found 
in  possession  of  silver  filings  or  parings  should  be  burned  in  the  cheek  with  a  red- 
hot  iron.  Certain  officers  were  employed  to  search  for  bullion.  If  bullion  were 
found  in  a  house  or  on  board  of  a  ship,  the  burden  of  proving  that  it  had  never 
been  part  of  the  money  of  the  realm  was  thrown  on  the  owner.  If  he  failed  in 
making  out  a  satisfactory  account  of  every  ingot  he  was  liable  to  severe  penalties. 
This  act  was,  as  might  have  been  expected,  altogether  ineffective.  During  the 


THE    SILVER    RECOINAGE    IN    ENGLAND.  185 

following  summer  and  autumn  the  coin  went  on  dwindling,  and  the  cry  of  dis- 
tress from  every  county  in  the  realm  became  louder  and  more  piercing. 

"  But,  happily  for  England,  there  were  among  her  rulers  some  who  clearly 
perceived  that  it  was  not  by  halters  and  branding-irons  that  her  decaying  industry 
and  commerce  could  be  restored  to  health.  The  state  of  the  currency  had, 
during  some  time,  occupied  the  serious  attention  of  four  eminent  men  closely 
connected  by  public  and  private  ties.  Two  of  them  were  politicians  who  had 
never  in  the  midst  of  official  and  parliamentary  business  ceased  to  love  and 
honor  philosophy  ;  and  two  were  philosophers  in  whom  habits  of  abstruse  medi- 
tation had  not  impaired  the  homely  good  sense  without  which  even  genius  is 
mischievous  in  politics.  Never  had  there  been  an  occasion  which  more  urgently 
required  both  practical  and  speculative  abilities  ;  and  never  had  the  world  seen 
the  highest  practical  and  the  speculative  abilities  united  in  an  allegiance  so  close, 
so  harmonious,  and  so  honorable  as  that  which  bound  Somers  and  Montague  to 
Locke  and  Newton.  .  .  . 

"  In  whatever  way  the  restoration  of  the  coin  might  be  affected,  great  sacri- 
fices must  be  made,  either  by  the  whole  community  or  by  a  part  of  the  commu- 
nity, and  to  call  for  such  sacrifices  at  a  time  when  the  nation  was  at  war,  and 
was  already  paying  taxes  such  as,  ten  years  before,  no  financier  would  have 
thought  it  possible  to  raise,  was  undoubtedly  a  course  full  of  danger.  Timorous 
politicians  were  for  delay  ;  but  the  deliberate  conviction  of  the  great  Whig 
leaders  was  that  something  must  be  hazarded,  or  that  everything  was  lost. 
Montague  in  particular  is  said  to  have  expressed  in  strong  language  his  deter- 
mination to  kill  or  cure.  If,  indeed,  there  had  been  any  hope  that  the  evil 
would  merely  continue  to  be  what  it  was,  it  might  have  been  wise  to  defer  till 
the  return  of  peace  an  experiment  which  must  severely  try  the  strength  of  the 
body  politic.  But  the  evil  was  one  which  daily  made  progress  almost  visible  to 
the  eye.  There  might  have  been  a  recoinage  in  1694  with  half  the  risk  which 
must  be  run  in  1696  ;  and  great  as  would  be  the  risk  in  1696,  that  risk  would  be 
doubled  if  the  recoinage  were  postponed  till  1698. 

"Those  politicians  whose  voice  was  for  delay  gave  less  trouble  than  another 
set  of  politicians  who  were  for  a  general  and  immediate  recoinage,  but  who 
insisted  that  the  new  shilling  should  be  worth  only  ninepence  or  ninepence  half- 
penny. At  the  head  of  this  party  was  William  Lowndes,  Secretary  of  the  Treas- 
ury, a  most  respectable  and  industrious  public  servant,  but  much  more  versed  in 
the  details  of  his  office  than  in  the  higher  parts  of  political  philosophy.  He  was 
not  in  the  least  aware  that  a  piece  of  metal  with  the  king's  head  on  it  was  a 
commodity  of  which  the  price  was  governed  by  the  same  laws  which  govern  the 
price  of  a  piece  of  metal  fashioned  into  a  spoon  or  a  buckle,  and  that  it  was  no 
more  in  the  power  of  Parliament  to  make  the  kingdom  richer  by  calling  a  crown 
a  pound  than  to  make  the  kingdom  larger  by  calling  a  furlong  a  mile.  He 
seriously  believed,  incredible  as  it  may  seem,  that  if  an  ounce  of  silver  were 
divided  into  seven  shillings  instead  of  five,  foreign  nations  would  sell  us  their 
wines  and  their  silks  for  a  smaller  number  of  ounces.  He  had  a  considerable 
following,  composed  partly  of  dull  men  who  really  believed  what  he  told  them, 
and  partly  of  shrewd  men  who  were  perfectly  willing  to  be  authorized  by  law 
to  pay  a  hundred  pounds  with  eighty.  Had  his  arguments  prevailed,  the  evils 


l86  THE    SILVER    RECOINAGE    IN    ENGLAND. 

of  a  vast  confiscation  would  have  been  added  to  the  other  evils  which  afflicted 
the  nation;  public  credit,  still  in  its  tender  and  sickly  infancy,  would  have  been 
destroyed,  and  there  would  have  been  much  risk  of  a  general  mutiny  of  the  fleet 
and  army.  Happily  Lowndes  was  completely  refuted  by  Locke  in  a  paper  drawn 
up  for  the  use  of  Somers.  Somers  was  delighted  with  this  little  treatise,  and 
desired  that  it  might  be  printed.  It  speedily  became  the  text-book  of  all  the 
most  enlightened  politicians  in  the  kingdom,  and  may  still  be  read  with  pleasure 
and  profit." 

The  proposition  of  Lowndes  was  for  a  recoinage  of  the  currency 
with  one-fifth  less  metal  than  the  standard  of  the  old  coins ;  to  raise, 
to  use  his  own  words,  "  the  value  of  the  silver  in  the  coins  to  the 
foot  of  6s.  3d.  in  every  crown,  because  the  price  of  standard  silver 
in  bullion  is  risen  to  6s.  5d.  an  ounce."  Locke  was  called  upon  to 
prove,  and  did  prove  most  conclusively,  that  silver  coins  only 
equalled  in  value  similar  weights  of  the  metal  in  bullion ;  and,  con- 
sequently, that  nothing  could  be  gained,  at  home  or  abroad,  by  alter- 
ing the  standard,  as  the  coins,  both  at  home  and  abroad,  would  pass 
only  at  their  value  measured  by  weight  and  fineness.  It  would  seem 
that  the  conclusions  to  which  Locke  came  might  have  been  assumed 
as  axioms  from  which  he  might  have  commenced  his  argument.  If 
so,  the  statement  of  the  question  contained  its  own  answer.  Locke 
was  not  content  with  this.  He  prepared  a  pamphlet  of  more  than 
a  hundred  pages  in  which  he  reenforced  his  argument  by  a  wealth 
and  conclusiveness  of  illustration  which  should  have  put  the  question 
forever  at  rest.  He  did,  indeed,  carry  the  government  with  him, 
but  by  no  means  the  general  sense  of  mankind. 

The  plan  of  relief  finally  adopted  by  the  English  government 
provided  that  the  money  of  the  kingdom  should  be  recoined 
according  to  the  old  standard  of  weight  and  fineness ;  that  all  the 
pieces  should  be  milled,  and  that  the  loss  on  the  clipped  pieces 
should  be  borne  by  the  public.  A  time  was  fixed  after  which  no 
clipped  money  should  pass,  except  in  payments  to  the  government ; 
and  a  later  time  after  which  it  should  not  pass  at  all.  To  provide 
for  the  loss  on  the  clipped  coins,  the  Bank  of  England  undertook, 
on  the  security  of  the  window  tax,  to  advance  the  government 
£i, 200,000.  This  advance,  however,  afforded  but  a  partial  relief. 
Full  relief  could  only  be  had  when  the  new  silver  (the  metal  chiefly 
in  circulation)  came  in  in  sufficient  abundance  to  fill  up  the  vacuum 
made  by  calling  in  the  old. 


THE    SILVER    RECOINAGE    IX    ENGLAND.  187 

"Saturday,  the  second  of  May,"  (1696),  said  Lord  Macaulay,  "had  been 
fixed  as  the  last  day  on  which  the  clipped  crowns,  half-crowns,  and  shillings 
were  to  be  received  by  tale  in  payment  of  taxes.  The  Exchequer  was  besieged 
from  dawn  till  midnight  by  an  immense  multitude.  It  was  necessary  to  call  in 
the  guards  for  the  purpose  of  keeping  order.  On  the  following  Monday  began  a 
cruel  agony  of  a  few  months,  which  was  destined  to  be  succeeded  by  many  years 
of  almost  unbroken  prosperity. 

"  Most  of  the  old  silver  had  vanished.  The  new  silver  had  scarcely  made  its 
appearance.  About  ^4, 000,000,  in  ingots  and  hammered  coin,  were  lying  in 
the  vaults  of  the  Exchequer  ;  and  the  milled  money  as  yet  came  forth  very  slowly 
from  the  Mint.  Alarmists  predicted  that  the  wealthiest  and  most  enlightened 
kingdom  in  Europe  would  be  reduced  to  the  state  of  those  barbarous  societies  in 
which  a  mat  is  bought  with  a  hatchet,  and  a  pair  of  moccasins  with  a  piece  of 
venison.  There  were,  indeed,  some  hammered  pieces  which  had  escaped  mutila- 
tion, and  sixpences  not  clipped  within  the  innermost  ring  were  still  current.  This 
old  money  and  the  new  money  together  made  up  a  scanty  stock  of  silver,  which, 
with  the  help  of  gold,  was  to  carry  the  nation  through  the  summer.  The  manu- 
facturers generally  continued,  though  with  extreme  difficulty,  to  pay  their  work- 
men in  coin.  The  upper  classes  seem  to  have  lived  to  a  great  extent  on  credit. 
Even  an  opulent  man  seldom  had  the  means  of  discharging  the  weekly  bills  of 
his  baker  and  butcher.  A  promissory  note,  however,  subscribed  by  such  a  man, 
was  readily  taken  in  the  district  where  his  means  and  character  were  well  known. 
The  notes  of  the  wealthy  money-changers  of  Lombard  street  circulated  widely. 
The  paper  of  the  Bank  of  England  did  much  service. 

"The  directors  soon  found  it  impossible  to  procure  silver  to  meet  every  claim 
which  was  made  on  them  in  good  faith.  They  then  bethought  them  of  a  new 
expedient.  They  made  a  call  of  twenty  per  cent,  on  the  proprietors,  and  thus 
raised  a  sum  which  enabled  them  to  give  every  applicant  fifteen  per  cent,  in 
milled  money  on  what  was  due  to  him.  They  returned  him  his  notes  after 
making  a  minute  upon  it  that  part  had  been  paid.  A  few  notes  thus  marked  are 
still  preserved  among  the  archives  of  the  Bank,  as  memorials  of  that  terrible 
year.  The  paper  of  the  corporation  continued  to  circulate  ;  but  the  value 
fluctuated  violently  from  day  to  day,  and  indeed  from  hour  to  hour  ;  for  the 
public  mind  was  in  so  excitable  a  state  that  the  most  absurd  lie  which  a  stock- 
jobber could  invent  sufficed  to  send  the  price  up  or  down.  At  one  time  the  dis- 
count was  only  six  per  cent.,  at  another  time  twenty-four  per  cent.  A  ten- 
pound  note,  which  had  been  taken  in  the  morning  as  worth  more  than  nine 
pounds,  was  often  worth  less  than  eight  pounds  before  night. 

"  Meanwhile,  strenuous  exertions  were  making  to  hasten  the  recoinage. 
Since  the  restoration  the  mint  had,  like  every  other  public  establishment  in  the 
kingdom,  been  a  nest  of  idlers  and  jobbers.  The  important  office  of  warden, 
worth  between  six  and  seven  hundred  a  year,  had  become  a  mere  sinecure,  and 
had  been  filled  by  a  succession  of  fine  gentlemen  who  were  well  known  at  the 
hazard-table  at  Whitehall,  but  who  never  condescended  to  come  near  the 
Tower.  This  office  had  just  become  vacant,  and  Montague  had  obtained  it  for 
Newton.  The  ability,  the  industry,  and  the  strict  uprightness  of  the  great  philos- 
opher speedily  produced  a  complete  revolution  throughout  the  department  which 


1 88  THE    SILVER    RECOINAGE    IN    ENGLAND. 

was  under  his  direction.  He  devoted  himself  to  his  task  with  an  activity  which 
left  him  no  time  to  spare  for  those  pursuits  in  which  he  had  surpassed  Archi- 
medes and  Galileo.  Till  the  great  work  was  completely  done,  he  resisted  firmly, 
and  almost  angrily,  every  attempt  that  was  made  by  men  of  science,  either  here 
or  on  the  Continent,  to  draw  him  away  from  his  official  duties.  The  old  officers 
of  the  mint  had  thought  it  a  great  feat  to  coin  silver  to  the  amount  of  fifteen 
thousand  pounds  a  week.  When  Montague  talked  of  thirty  or  forty  thousand, 
these  men  of  form  and  precedent  pronounced  the  thing  impracticable.  But  the 
energy  of  the  young  chancellor  of  the  Exchequer  and  of  his  friend  the  warden 
accomplished  far  greater  wonders.  Soon  nineteen  mills  were  going  at  once  in 
the  Tower.  As  fast  as  men  could  be  trained  to  the  work  in  London,  bands  of 
them  were  sent  off  to  other  parts  of  the  kingdom.  Mints  were  established  at 
Bristol,  York,  Exeter,  Norwich,  and  Chester.  This  arrangement  was  in  the 
highest  degree  popular.  The  machinery  and  the  workmen  were  welcomed  to 
the  new  stations  with  the  ringing  of  bells  and  the  firing  of  guns.  The  weekly 
issue  increased  to  sixty  thousand  pounds,  to  eighty  thousand,  to  a  hundred 
thousand,  and  at  length  to  a  hundred  and  twenty  thousand.  Yet  even  this  issue, 
though  great,  not  only  beyond  precedent,  but  beyond  hope,  was  scanty  when 
compared  with  the  demands  of  the  nation.  Nor  did  all  the  newly  stamped  silver 
pass  into  circulation  ;  for  during  the  summer  and  autumn  those  politicians  who 
were  for  raising  the  denomination  of  the  coin  were  active  and  clamorous  ;  and  it 
was  generally  expected  that,  as  soon  as  Parliament  should  reassemble,  the 
standard  would  be  lowered.  Of  course,  no  person  who  thought  it  probable  that 
he  should,  at  a  day  not  far  distant,  be  able  to  pay  a  debt  of  a  pound  with  three 
crown  pieces  instead  of  four,  was  willing  to  part  with  a  crown  piece  till  that  day 
arrived.  Most  of  the  milled  pieces  were,  therefore,  hoarded.  May,  June,  and 
July  passed  away  without  any  perceptible  increase  in  the  quantity  of  good  money. 
It  was  not  till  August  that  the  keenest  observer  could  discern  the  first  faint  signs 
of  returning  prosperity."  l 

The  parallelism  between  the  situation  in  the  United  States  to-day 
and  that  in  England  two  hundred  years  ago,  both  countries  suffering 
from  a  similar  cause,  a  vicious  currency,  one  of  the  greatest  calami- 
ties that  can  befall  a  people,  is  very  striking.  Macaulay  states  that 
of  the  receipts  into  the  English  Treasury  when  the  currency  there 
was  at  its  lowest  value  not  over  one-half  of  one  per  cent,  was  in 
money  of  full  weight.  The  receipts  into  the  Treasury  of  the  United 
States  are  now  almost  wholly  in  the  form  of  silver  certificates,  uni- 
versally regarded  as  of  "  light  weight,"  as  the  least  valuable  of  the 
various  kinds  of  money  with  us  in  circulation.  In  spite  of  the  pro- 
testations of  our  Government  that  every  kind  of  money  issued  by  it  is 
equally  good,  the  better  sense  of  the  people  tells  them  that  there  is 
a  wide  difference  in  value  between  them.  Greenbacks,  the  highest 

1  Macaulay's  "History  of  England,"  Volume  IV. 


THE    SILVER    RECOINAGE    IN    ENGLAND.  189 

form  of  Government  paper  money,  are  legal  tender,  and  are  in  terms 
payable  in  gold,  of  which  reserves  equal  to  twenty-five  per  cent,  of 
their  amount  are  assumed  to  be  provided.  The  notes  of  1890,  con- 
stituting the  second  form  of  paper  money,  are  also  legal  tender, 
which  implies  an  obligation  on  the  part  of  the  Government  to  pay 
them  in  the  kind  of  money  demanded  by  the  holder.  They  are  also 
supported  by  a  declaration  of  Congress  that  they  are  to  be  paid  in 
gold  at  the  option  of  the  holder.  But  such  a  declaration  has  not  the 
force  of  positive  law.  For  these  Government  does  not  assume  to 
provide  any  reserves  whatever.  The  third  form  are  the  silver  notes 
of  1878  to  which  it  is  assumed  that  the  declaration  of  Congress  in 
favor  of  the  notes  of  1890  applies.  They  are  not  legal  tender,  and 
it  is  purely  optional  with  the  Government  whether  it  will  make  any 
provision  for  them  other  than  the  silver  which  they  represent,  the 
value  of  which  somewhat  exceeds  fifty  per  cent,  of  their  nominal 
amount.  So  far  as  reserves  are  concerned  the  silver  notes  are  the 
best  secured  of  all.  Although  the  notes  of  all  still  circulate  at  the 
nominal  value  of  gold,  banks  and  bankers  are  very  careful  never  to 
have  any  considerable  amount  of  notes  of  1878  on  hand.  They  are 
not  available  for  settlements  of  balances  at  the  clearing  houses  in  the 
leading  cities,  especially  in  the  city  of  New  York.  Silver  dollars,  a 
fourth  kind  of  debased  money,  worth  less  than  one-half  their  nominal 
value,  are  scrupulously  avoided  by  all  classes  for  fear  that  any  day 
they  may  circulate  at  their  real  value.  The  result  is,  that  instead  of 
one  kind  of  debased  money,  as  in  England,  we  have  four  in  the 
United  States  :  United  States  notes  —  the  greenbacks,  —  the  silver 
certificates  of '187 8,  the  silver  notes  of  1890,  and  silver  dollars,  all 
with  a  well-marked  difference  in  value.  By  means  of  them  almost 
all  the  business  operations  of  the  country  are  carried  on.  All  are  infla- 
tions of  the  currency  for  the  discharge  of  not  one  of  which  in  gold 
any  adequate  provision  has  been  or  ever  will  be  made.  With  so 
many  different  kinds  of  money  differing  in  value,  is  not  the  paralysis 
resting  upon  all  business  affairs,  extending  backwards  through  several 
years,  readily  accounted  for?  The  condition  of  things  in  England 
two  hundred  years  ago,  described  so  graphically  by  Macaulay,  was 
normal  compared  with  the  confusion  and  chaos  that  exist  here. 
Can  the  crisis  here  be  met  with  the  sense  and  courage  which  was 
displayed  in  a  similar  one  two  hundred  years  ago  ?  Is  the  officer  who 
presides  over  the  department  of  the  Treasury  of  the  United  States, 


190  PAPER    MONEY    IX    FRANCE. 

like  the  one  who  presided  over  a  similar  department  in  England, 
ready  to  declare  his  determination  to  "kill  or  cure  "?  The  motives 
that  press  upon  him  are  ten- fold  more  urgent.  In  the  place  of 
7,000,000  people  we  have  here  70,000,000  groaning  under  the  evils 
of  a  vicious  monetary  system,  all  apprehensive  of  the  crowning  dis- 
aster which  may  happen  at  any  moment  —  suspension  o-f  specie  pay- 
ments alike  by  the  Government  and  people.  The  operations  of 
society  here  resting  upon  a  debased  currency  are  twenty-fold  greater 
per  head  than  they  were  two  hundred  years  ago.  The  boon  which 
he  would  confer  should  he  succeed  in  the  great  task  before  him  is 
beyond  estimate,  and  would  entitle  him  to  the  highest  position 
among  those  who  have  deserved  well  of  their  country. 

PAPER    MONEY    IX    FRAXCE. THE    MISSISSIPPI    SCHEME. 

One  of  the  most  striking  and  instructive  examples  of  a  credit  cur- 
rency was  that  of  France,  under  the  leadership  of  the  celebrated 
John  Law.  He  proceeded  upon  the  assumption  that  "  as  the  credit 
of  a  merchant  amounted  to  ten-fold  his  capital,  that  of  a  bank  might 
be  still  greater ;  while  there  was  no  limit  to  that  of  a  State  or  a 
king;"  that  as  money  is  that  which  sets  everything  in  motion, 
the  prosperity  of  a  people  or  State  is  in  ratio  to  its  amount ;  and 
metallic  money  receives  its  value  from  the  insignia  of  Government. 
He  began  his  vast  schemes  by  securing  (May  7,  1716)  an  edict 
for  the  establishment  of  a  private  institution  called  "La  Banque 
Generale."  As  at  the  outset  it  was  conducted  in  a  business-like 
manner,  it  met  with  great  success,  increasing  the  supply  of  money, 
and  thereby  reducing  by  one-half  the  rates  previously  paid.  Its 
capital  consisted  of  6,000,000  livres  (the  equivalent  of  about 
$1,200,000),  divided  into  shares  of  5,000  livres  each.  Its  capital 
was  paid  one-fourth  in  coin  and  three-fourths  in  Government  funds. 
On  the  loth  of  April,  1717,  an  edict  was  passed  ordering  the  collectors 
of  taxes  to  receive  in  their  payment  the  notes  of  the  bank,  thereby 
securing  for  them  a  large  circulation.  From  the  uses  they  served 
their  amount  was  presently  increased  to  60,000,000  livres. 

A  high  credit  having  been  secured  by  such  measures  for  his  bank, 
Law  proceeded  to  the  development  of  his  grand  schemes  of  con- 
trolling, through  the  money  supplied  by  it,  the  whole  machinery  of 
society  and  state.  In  August,  1717,  he  procured  an  edict  for  the 
establishment  of  the  "Compagnie  des  Indes-Occidentales,"  which 


PAPER    MONEY    IX    FRANCE.  19! 

secured  to  him  the  virtual  sovereignty  of  the  most  fertile  portions 
of  the  continent  of  North  America.  This  was  the  beginning  of  the 
famous  "  Mississippi  scheme,"  of  which  so  much  has  been  written 
and  said.  The  capital  of  the  new  company  was  100,000,000  livres 
($20,000,000),  divided  into  shares  of  500  each,  payment  being 
made  one-fourth  in  coin  and  three-fourths  in  government  funds. 
On  the  fourth  of  September,  1718,  the  bank  became  a  government 
institution,  under  the  title  of  "  La  Banque  Royale,"  of  which  Law 
retained  the  management,  the  king  guaranteeing  its  notes,  the  stock- 
holders of  the  old  bank  being  paid  off  in  coin.  To  increase  the 
importance  of  the  bank  the  transfer  of  money  between  the  cities  in 
which  it  had  branches  was  forbidden.  The  bank  now  allied  itself  to 
the  Mississippi  Company,  which  became  the  great  instrument  of 
Law  in  carrying  out  his  vast  schemes,  its  issues  being  increased  to 
110,000,000  livres.  In  1719  the  East  India  and  Senegal  Com- 
panies of  France  were  united  with  the  Mississippi  Company,  a  union 
which  secured  to  the  latter  the  greater  part  of  the  foreign  trade  of  the 
kingdom.  From  the  assumed  advantages  that  would  result,  the 
stock  of  the  Mississippi  Company  rose  to  a  premium  of  450  per 
cent.  In  August,  1719,  the  company  undertook  to  advance  to  the 
Government,  at  the  rate  of  3  per  cent.,  the  sum  of  1,500,000,000 
livres  for  the  payment  of  the  public  debt,  which  had  previously 
borne  interest  at  the  rate  of  5  per  cent.  As  a  part  of  the  transaction 
the  farming  of  the  revenues  was  conceded  to  the  company  in  con- 
sideration of  the  annual  payment  of  52,000,000  livres.  The  coin- 
age was  also  conceded  for  a  period  of  nine  years  in  consideration  of 
the  payment  of  5,000,000  livres. 

The  stock  of  the  Mississippi  Company  now  rose  to  a  premium  of 
1 200  per  cent.  To  aid  it  in  its  various  undertakings  the  bank 
increased  its  issues  to  1,000,000,000  livres.  Money  became  so 
abundant  that  lands  sold  at  fifty  years'  purchase.  From  November, 
1719,  to  April,  1720,  the  market  value  of  the  stock  of  the  company 
rose  to  a  premium  of  2050  per  cent.  Law,  capable  of  giving  to  the 
most  worthless  substances  the  value  of  gold,  became  the  greatest 
figure  in  Europe.  Its  proudest  aristocracy  bowed  in  humble  rever- 
ence at  his  feet,  while  the  favor  and  admiration  of  the  masses  was 
won  by  his  liberal  use  of  his  apparently  boundless  wealth,  the  crea- 
tion of  the  printing-press.  He  was  now  made  Controller-General  of 
the  finances  of  the  kingdom,  one  of  its  most  distinguished  citi- 


192  PAPER    MONEY    IX    FRANCE. 

zens  being  compelled  to  make  way  for  him.  As  Paris  was  the  theatre 
of  this  vast  creation  of  apparent  wealth,  all  France  literally  nocked 
to  it  as  the  place  where  money  was  to  be  had  for  the  asking.  Trade 
received  a  mighty  impulse.  Everybody  seemed  to  be  getting  richer 
and  richer,  and  no  one  poorer.  It  was  the  halcyon  era  of  pure  popu- 
lism. The  market  value  of  the  shares  of  the  bank  reached  10,000,000,- 
ooo  livres.  Upon  such  a  sum  a  revenue  of  500,000,000  was  neces- 
sary to  pay  5  per  cent.  Its  whole  income  from  all  sources  did  not 
equal  one-sixth  part  of  that  sum.  As  was  inevitable,  the  more 
reflecting  classes  began  to  exchange  their  shares  for  other  kinds  of 
property.  The  example  was  contagious,  and  shares  began  to  fall 
rapidly  in  price.  To  meet  the  fall  a  series  of  edicts  was  rapidly 
issued,  one  of  which  provided  that  the  notes  should  command  a 
premium  over  gold,  the  use  of  which  was  to  be  greatly  restricted, 
every  one  being  forbidden  to  have  any  considerable  amount  in 
his  possession.  All  such  measures  only  served  to  accelerate  the 
decline.  To  arrest  it  the  gross  value  of  the  shares  was  fixed  at 
9,000,000,000  livres,  the  company  being  required  to  purchase  and 
sell  at  that  rate.  To  add  to  the  confusion  and  distress  metallic 
money  was  not  to  be  had,  the  greater  part  of  that  previously  in 
circulation  having  been  sent  out  of  the  kingdom.  Universal  dis- 
aster and  distress  took  the  place  of  the  extravagance  and  waste 
which  had  so  recently  prevailed.  The  money  of  the  bank  be- 
came almost  wholly  valueless.  The  untold  wealth  of  the  Missis- 
sippi Company  was  seen  to  be  only  a  dream.  Great  masses  of 
people  who  had  invested  their  all  in  Law's  schemes  were  reduced  to 
abject  want.  The  vast  fabric  that  was  reared  and  the  terrible  catas- 
trophe that  followed  were  rendered  possible  only  through  the  issue 
of  a  "  credit  currency  "  precisely  similar  in  kind  to  the  United  States 
notes.  With  the  turn  of  the  tide,  Law,  speedily  stripped  of  all  his 
offices  and  honors,  fled  secretly  and  in  disgrace  from  France,  never 
to  return.  To  restore  the  situation  in  part,  the  government  again 
assumed  the  charge  of  the  public  debt,  the  interest  on  it  being 
reduced  about  half  —  to  40,000,000  in  the  place  of  80,000,000 
livres.  The  charter  of  the  bank  was  abrogated,  and  the  famous 
Mississippi  Company,  divested  of  all  its  vast  powers,  was  reduced  to 
the  condition  of  a  private  and  insignificant  trading  corporation. 
That  the  issue  of  United  States  notes,  a  currency  precisely  similar 
in  kind  to  those  of  the  Bank  of  France,  has  not  been  followed  by 


PAPER    MONEY    IX    FRANCE.  193 

calamities  similar  to  those  which  overtook  Law's  bank,  is  due  to  the 
fact  that  it  has  not  been  made  the  basis  of  vast  speculative  opera- 
tions, its  orderly  retirement  being  still  within  our  reach. 

But  France,  as  well  as  England,  had  an  illustrious  citizen,  Turgot, 
capable  of  demonstrating,  and  who  did  demonstrate  most  conclu- 
sively, the  laws  and  nature  of  money,  whether  metallic  or  paper.  To 
Law's  assumption  that 

These  two  metals  —  gold  and  silver  —  are  only  the  signs  that  represent  real 
wealth,  that  is  to  say,  commodities.  A  crown  is  a  note  conceived  in  these  terms: 
"Any  seller  shall  give  to  the  bearer  the  article  or  merchandise  of  which  he  may 
have  need,  to  the  amount  of  three  livres,  for  as  much  of  another  merchandise 
which  has  been  delivered  to  me  ;  "  and  the  effigy  of  the  prince  stands  for  the 
signature.  Now  what  does  it  signify  whether  the  sign  be  of  silver  or  of  paper? 
Is  it  not  better  to  choose  a  material  that  costs  nothing  and  which  we  are  not 
obliged  to  withdraw  from  commerce  where  it  is  employed  as  merchandise,  —  one, 
in  fine,  that  is  fabricated  in  the  kingdom  and  does  not  subject  us  to  a  necessary 
dependence  on  foreigners  and  owners  of  mines,  who  greedily  profit  by  the  seduc- 
tion into  which,  by  the  glamour  of  gold  and  of  silver,  other  nations  have  fallen, 
—  a  material  which  we  can  increase  according  to  our  needs,  without  fear  of  its 
ever  being  deficient?  Paper  has  all  these  advantages  which  render  it  preferable 
to  hard  money.1  % 

Turgot  replied  : 

Here  would  be  a  benefit  as  grand  as  the  philosopher's  stone  if  all  these 
reasonings  were  just.  We  should  have  need  of  neither  gold  nor  silver  to  buy  all 
kinds  of  commodities.  But  has  it  been  left  to  Law  to  remain  ignorant  that  gold 
falls  in  value  like  everything  else  by  becoming  more  plentiful  ?  If  he  had  read 
and  studied  Locke,  who  wrote  twenty  years  before  him,  he  would  have  known 
that  all  commodities  of  a  country  are  balanced  between  themselves,  and  with 
gold  and  silver  according  to  the  proportion  of  their  quantity  and  the  demand  for 
them  ;  he  would  have  learned  that  gold  has  not  a  value  which  corresponds 
always  to  a  certain  quantity  of  merchandise,  but  that  when  there  is  more  gold  it 
is  cheaper,  and  gives  more  of  it  for  a  determinate  quantity  of  merchandise  ;  that 
thus  gold,  when  it  circulates  freely,  suffices  always  to  the  need  of  the  State,  and 
that  it  becomes  a  matter  indifferent  to  have  one  hundred  millions  of  marks,  or 
one  million,  if  we  are  to  buy  all  commodities  dearer  in  the  same  proportion.  It  is 
ridiculous  to  say  that  metallic  money  is  only  a  sign  of  value,  the  credit  of  which  is 
founded  on  the  stamp  of  the  king.  This  stamp  is  only  to  certify  the  weight  and 
the  title.  Even  in  its  relation  to  commodities  the  metal  uncoined  is  of  the  same 
price  as  that  coined.  The  marked  value  is  simply  a  denomination.  This  is  what 
Law  seems  to  have  been  ignorant  of  in  establishing  his  bank. 

It  is  then  as  mercJiandise  that  coined  money  is,  not  the  sign,  but  the  com- 
mon measure,  of  other  merchandise,  and  that  not  by  an  arbitrary  convention, 

1  Stephens'  "  Life  of  Turgot,"  page  206. 


194  PAPER    MONEY    IN    FRANCE. 

founded  on  the  glamour  of  that  metal,  but  because,  being  fit  to  be  employed  in 
different  shapes  as  merchandise,  and  having  on  account  of  this  property  a  salable 
value,  a  little  increased  by  the  use  made  of  it  as  money,  and  being  besides  suit- 
able of  reduction  to  a  given  standard  and  of  being  equally  divided,  we  always 
know  the  value  of  it.  Gold  obtains  its  price  from  its  rarity,  and  so  far  from  its 
being  an  evil  that  it  is  employed  at  the  same  time  as  merchandise  and  as  money, 
these  two  employments  maintain  its  price. 

Supposing  that  the  king  could  establish  paper  money,  which,  with  all  his 
authority,  would  not  be  easy,  let  us  examine  what  he  would  gain  by  it.  First,  if 
he  increased  the  quantity  he  would  lower  the  value  by  the  same  act;  and  as  he 
reserves  the  power  to  increase  it,  it  is  impossible  for  people  to  consent  to  give 
their  commodities,  at  the  same  nominal  price,  for  a  bill,  when  by  a  stroke  of  the 
pen  that  could  be  made  to  lose  its  real  value.  "  But,"  says  Law,  "  the  king,  to 
preserve  his  credit,  is  interested  in  restricting  the  paper  within  just  limits,  and 
this  interest  of  the  king  is  sufficient  to  establish  public  confidence."  What  should 
the  just  limits  be,  and  how  are  they  to  be  determined?  Let  us  follow  out  the 
system  into  the  different  suppositions  that  may  be  made,  and  let  us  see  in  each 
case  what  would  be  its  solidity  in  respect  to  the  utility  it  proposes. 

I  observe,  first  of  all,  that  it  is  absolutely  impossible  for  the  king  to  substi- 
tute the  use  of  paper  for  that  of  gold  and  silver.  Gold  and  silver  themselves, 
regarding  them  only  as  signs,  are,  by  the  fact  of  their  circulation,  actually  dis- 
tributed among  the  public  according  to  the  proportion  of  the  commodities,  of  the 
industry,  lands,  and  real  wealth  of  every  kind  existing.  Now,  this  proportion 
can  never  be  primarily  known,  because  it  is  hidden,  and  because  it  varies  con- 
tinually by  a  new  circulation.  The  king  will  not  proceed  to  distribute  his  paper 
money  to  each  person  in  the  proportion  that  he  holds  gold  and  silver  money,  for- 
bidding him  at  the  same  time  to  employ  the  metal  in  commerce  ;  it  would  be 
necessary  for  the  king  to  take  to  himself  the  gold  and  silver  of  his  subjects, 
giving  them  his  paper  in  their  place.  .  .  .  But  it  is  a  point,  equally  of  theory 
and  of  experience,  that  the  people  would  never  receive  the  paper  except  as  repre- 
senting real  money,  and  consequently  convertible  into  it. 

One  of  the  ways  in  which  the  king  could  draw  to  himself  metallic  money 
in  exchange,  and  perhaps  the  only  way,  would  be  for  him  to  take  back  his  notes, 
conjointly  with  the  coin,  but  to  give  out  only  his  notes,  while  keeping  the  coin. 
Then  he  would  choose  between  these  two  expedients :  either  to  melt  the  coin  in 
order  to  use  it  as  merchandise,  reducing  his  subjects  to  the  use  of  paper,  or  to 
leave  the  coin  and  to  circulate  conjointly  with  it  the  paper  as  representatives  of 
each  other.  I  commence  by  examining  this  last  supposition. 

I  assume,  then,  that  the  king  puts  into  circulation  a  quantity  of  paper  money 
equal  to  that  of  coin  (Law  would  have  put  ten  times  more).  Now,  as  the  total 
quantity  of  signs  (instruments  of  exchange)  always  balances  itself  with  the  total 
of  commodities,  it  is  plain  that  the  sign  will  be  worth  the  half  less,  or,  what  is 
the  same  thing,  commodities  will  be  worth  as  much  again  more.  But  independ- 
ently of  their  function  as  signs  of  value,  gold  and  silver  possess  their  real  value 
as  articles  of  merchandise,  a  value  which  also  balances  itself  against  the  commod- 
ities proportionately  to  the  quantities  of  these  metals,  and  which  they  do  not  lose 
by  their  function  as  money,  but  on  the  contrary  ;  that  is  to  say,  their  value  will 


ADAM    SMITH.  195 

be  balanced  with  more  merchandise  as  metal  than  the  paper  can  be  with  which  it 
was  balanced  as  money,  and,  as  I  shall  afterwards  show,  the  king  being  always 
obliged  to  increase  the  number  of  his  notes  if  he  would  not  have  them  rendered 
useless,  this  disproportion  will  go  on  increasing  to  the  point  when  specie  and 
paper  will  be  no  longer  reciprocally  convertible,  and  the  paper  must  become  dis- 
credited from  day  to  day,  while  the  value  of  metallic  money  will  be  always  sus- 
tained.1 . 

If  more  than  forty  years  afterward  (said  Dupont  in  his  "  Works 
of  Turgot")  the  majority  of  the  Constituent  Assembly  had  had  as 
much  enlightenment  upon  this  question  as  Turgot  already  had 
shown  while  almost  a  youth,  France  would  have  been  saved  from 
the  assignats.  In  the  United  States,  after  the  experience  of  nearly 
two  hundred  years,  Law  instead  of  Turgot,  upon  the  subject  of 
money,  is  still  our  mentor  and  guide. 

ADAM    SMITH. 

The  theory  of  money  which  now  obtains  in  the  United  States  was 
formulated  by  Adam  Smith,  who  was  a  follower  of  Law  in  assum- 
ing that  it  circulated  from  the  necessity  of  a  medium  of  exchange, 
and  that  without  any  other  support  it  would  continue  to  circulate 
and  perform  all  the  functions  of  metallic  money  provided  it  was 
not  in  excess ;  that  is,  provided  that  the  amount  did  not  exceed 
that  of  the  metallic  money  which  had  circulated  in  its  place. 
Costing  nothing  in  itself,  it  was  a  very  proper  substitute  for  metallic 
money,  the  value  of  which  was  intrinsic.  In  his  great  treatise, 
"Wealth  of  Nations,"  he  said:  . 

The  substitution  of  paper  in  the  room  of  gold  and  silver  money  replaces  a 
very  expensive  instrument  of  commerce  with  one  much  less  costly,  and  sometimes 
equally  convenient.  Circulation  comes  to  be  carried  on  by  a  new  wheel,  which 
it  costs  less  both  to  erect  and  maintain  than  the  old  one.  But  in  what  manner 
this  operation  is  performed,  and  in  what  manner  it  tends  to  increase  either  the 
gross  or  the  neat  revenue  of  the  society,  is  not  altogether  so  obvious,  and  may, 
therefore,  require  some  further  explication. 

There  are  several  sorts  of  paper  money,  but  the  circulating  notes  of  banks 
and  bankers  are  the  species  which  is  best  known,  and  which  seems  best  adapted 
for  this  purpose.  When  the  people  of  any  particular  country  have  such  confi- 
dence in  the  fortune,  probity,  and  prudence  of  a  particular  banker  as  to  believe 
that  he  is  always  ready  to  pay  upon  demand  such  of  his  promissory  notes  as  are 
likely  to  be  at  any  time  presented  to  him,  these  notes  come  to  have  the  same 

:  Stephens'  "  Life  of  Turgot,"  page  206. 


196  ADAM    SMITH. 

currency  as  gold  and  silver  money,  from  the  confidence  that  such  money  can  at 
any  time  be  had  for  them. 

A  particular  banker  lends  among  his  customers  his  own  promissory  notes,  to 
the  extent,  we  shall  suppose,  of  a  hundred  thousand  pounds,  As  those  notes 
serve  all  the  purposes  of  money,  his  debtors  pay  the  same  interest  as  if  he  had 
lent  them  so  much  money.  This  interest  is  the  source  of  his  gain.  Though 
some  of  these  notes  are  continually  coming  back  upon  him  for  payment,  part  of 
them  circulate  for  months  and  years  together  ;  though  he  has  generally  in  circu- 
lation, therefore,  notes  to  the  extent  of  a  hundred  thousand  pounds,  twenty 
thousand  pounds  in  gold  and  silver  may  frequently  be  sufficient  provision  for 
answering  occasional  demands. 

Let  us  suppose,  for  example,  that  the  whole  circulating  money  of  some 
particular  country  amounted  at  a  particular  time  to  ;£  1, 000,000,  that  sum 
then  being  sufficient  for  circulating  the  whole  annual  produce  of  their  land 
and  labor.  Let  us  suppose,  too,  that  some  time  thereafter  different  banks  and 
bankers  issued  promissory  notes  payable  to  the  bearer,  to  the  extent  of  ^"1,000,- 
ooo,  reserving  in  their  different  coffers  ^"200,000  for  answering  occasional 
demands.  There  would  remain,  therefore,  in  circulation,  ^800,000  in  gold 
and  silver  and  ,£1,000,000  of  banknotes,  or  ^1,800,000  of  paper  and  money 
together.  But  the  annual  produce  of  the  land  and  labor  of  the  country  had 
before  required  only  ;£  1,000,000  to  circulate  and  distribute  it  to  its  proper 
consumers,  and  that  annual  produce  cannot  be  immediately  augmented  by  the 
operations  of  banking;  ;£i,ooo,ooo,  therefore,  will  be  sufficient  to  circulate  it 
after  them.  The  goods  to  be  bought  and  sold  being  precisely  the  same  as 
before,  the  same  quantity  of  money  will  be  sufficient  for  buying  and  selling 
them.  The  channel  of  circulation,  if  I  may  be  allowed  such  an  expression, 
will  remain  precisely  the  same  as  before.  One  million  pounds  we  have 
supposed  sufficient  to  all  that  channel.  Whatever,  therefore,  is  poured  into  it 
beyond  that  sum  cannot  run  in  it,  but  must  overflow:  ,£1,800,000  are  poured 
into  it ;  ,£800,000,  therefore,  must  overflow,  that  sum  being  over  and  above 
what  can  be  employed  in  the  circulation  of  the  country.  But  though  this  sum 
cannot  be  employed  at  home,  it  is  too  valuable  to  be  allowed  to  lie  idle.  It  will, 
therefore,  be  sent  abroad,  in  order  to  seek  that  profitable  employment  which  it 
cannot  find  at  home.  But  the  paper  cannot  go  abroad,  because  at  a  distance 
from  the  banks  which  issue  it,  and  from  the  country  in  which  payment  of  it  can 
be  exacted  by  law,  it  will  not  be  received  in  common  payments.  Gold  and 
silver,  therefore,  to  the  amount  of  ,£800,000  will  be  sent  abroad  and  the  channel 
of  home  circulation  will  remain  filled  with  ;£  1,000,000  of  paper  instead  of  the 
P£I, 000,000  of  those  metals  which  filled  it  before.  .  .  . 

When  paper  is  substituted  in  the  room  of  gold  and  silver  money,  the  quantity 
of  the  materials,  tools,  and  maintenance  which  the  whole  circulating  capital  can 
supply  may  be  increased  by  the  whole  value  of  gold  and  silver  which  used  to  be 
employed  in  circulating  them.  The  whole  value  of  the  great  wheel  of  circulation 
and  distribution  is  added  to  the  goods  which  are  circulated  and  distributed  by 
means  of  it. 

What  is  the  proportion  which  the  circulating  money  of  any  country  bears  to 
the  whole  value  of  the  annual  produce  circulated  by  means  of  it,  it  is,  perhaps, 


ADAM    SMITH.  19^ 

impossible  to  determine.  It  has  been  computed  by  different  authors  at  a  fifth,  at 
a  tenth,  at  a  twentieth,  and  at  a  thirtieth  part  of  that  value.  But  how  small  soever 
the  proportion  which  the  circulating  money  may  bear  to  the  whole  value  of  the 
annual  produce,  as  but  a  part,  and  frequently  but  a  small  part,  of  that  produce 
is  ever  destined  for  the  maintenance  of  industry,  it  must  always  bear  a  very 
considerable  proportion  to  that  part. 

The  whole  paper  money  of  every  kind  which  can  easily  circulate  in  any 
country  can  never  exceed  the  value  of  the  gold  and  silver  of  which  it  supplies  the* 
place,  or  which  (the  commerce  being  supposed  the  same)  would  circulate  there 
if  there  were  no  paper  money.  If  twenty-shilling  notes,  for  example,  are  the 
lowest  paper  money  current  in  Scotland,  the  whole  of  that  currency  that  could 
easily  circulate  there  cannot  exceed  the  sum  of  gold  and  silver  which  would  be 
necessary  for  transacting  the  annual  exchanges  of  twenty  shillings'  value  and 
upwards  usually  transacted  in  that  country.  Should  the  circulating  paper  at  any 
time  exceed  that  sum,  as  the  excess  could  neither  be  sent  abroad  nor  employed  in 
the  circulation  of  the  country,  it  must  return  immediately  upon  the  banks  to  be 
exchanged  for  gold  and  silver.  Many  people  would  immediately  perceive  that 
they  had  more  of  this  paper  than  was  necessary  for  transacting  their  business  at 
home  ;  and,  as  they  could  not  send  it  abroad,  they  would  immediately  demand 
payment  for  it  at  the  banks.  When  this  superfluous  paper  was  converted  into 
gold  and  silver,  they  could  easily  find  a  use  for  it  by  sending  it  abroad  ;  but  they 
could  find  none  while  it  remained  in  the  shape  of  paper.  There  would  immedi- 
ately, therefore,  be  a  run  upon  the  banks  to  the  whole  extent  of  this  superfluous 
paper;  and,  if  they  showed  any  difficulty  or  backwardness  in  payment,  to  much 
greater  extent,  the  alarm  which  this  would  occasion  necessarily  increasing  the 
run. 

What  a  bank  can  with  propriety  advance  to  a  merchant  or  undertaker  of 
any  kind  is  not  either  the  whole  capital  with  which  he  trades,  or  even  any  con- 
siderable portion  of  that  capital,  but  that  part  of  it  only  which  he  would  other- 
wise be  obliged  to  keep  by  him  unemployed,  and  in  ready  money  for  answering 
occasional  demands.  If  the  paper  money  which  the  bank  advances  never  exceeds 
this  value,  it  can  never  exceed  the  value  of  the  gold  and  silver  which  would  nec- 
essarily circulate  in  the  country  if  there  were  no  paper  money.  It  can  never 
exceed  the  quantity  which  the  circulation  of  the  country  can  easily  absorb  and 
empty. 

When  it  was  observed  that,  within  moderate  periods  of  time,  the  repayments 
of  a  particular  customer  were  upon  most  occasions  fully  equal  to  the  advances 
which  a  bank  had  made  him,  it  might  be  assumed  that  the  paper  money  which 
had  been  advanced  to  him  had  not  at  any  time  exceeded  the  quantity  of  gold 
and  silver  which  he  would  otherwise  have  been  obliged  to  keep  by  him  for 
answering  occasional  demands  ;  and  that,  consequently,  the  paper  money  which 
had  been  circulated  by  his  means  had  not  at  any  time  exceeded  the  quantity  of 
gold  and  silver  which  would  have  circulated  in  the  country  had  there  been  no 
paper  money.  The  frequency,  regularity,  and  amount  of  his  repayments  would 
sufficiently  demonstrate  that  the  amount  of  the  advances  made  had  at  no  time 
exceeded  that  part  of  this  capital  which  he  would  otherwise  have  been  obliged 


198  ADAM    SMITH. 

to  keep  by  him  unemployed,  and  in  ready  money  for  answering  occasional 
demands.  .  . '  . 

The  advances  of  the  bank  paper,  by  exceeding  the  quantity  of  gold  and 
silver,  which,  had  there  been  no  such  advances,  he  would  have  been  obliged  to 
keep  by  him  for  answering  occasional  demands,  might  soon  come  to  exceed  the 
whole  quantity  of  gold  and  silver  which  would  have  circulated  in  the  country  had 
there  been  no  paper  money,  and,  consequently,  to  exceed  the  quantity  which  the 
circulation  of  the  country  could  easily  absorb  and  employ  ;  and  the  excess  of  this 
paper  money  would  immediately  have  returned  upon  the  bank  to  be  exchanged 
for  gold  and  silver. 

The  increase  of  paper  money,  it  has  been  said,  by  augmenting  the  quantity, 
and  consequently  diminishing  the  value,  of  the  whole  currency,  necessarily 
augments  the  money  price  of  commodities  ;  but  as  the  quantity  of  gold  and  silver 
which  is  taken  from  the  currency  is  always  equal  to  the  quantity  of  paper  which 
is  added  to  it,  paper  money  does  not  necessarily  increase  the  quantity  of.  the 
whole  currency.1 

With  Smith  money  arose  from  the  necessity  of  a  medium  of  ex- 
change, value,  either  intrinsic  or  representative,  being  no  necessary 
attribute  of  it.  Metallic  money,  first  in  use,  was  a  very  costly 
"wheel  of  circulation,"  for  which  another  "wheel,"  costing  nothing, 
paper  money,  was  "  substituted,"  a  corresponding  amount  of  capital 
being  thereby  discharged  from  unproductive  to  be  applied  to  pro- 
ductive uses.  To  secure  the  acceptance  of  the  "  substitute,"  all 
that  was  required  was  good  credit  on  the  part  of  the  issuer.  The 
process  was  a  very  simple  and  safe  one,  as  the  amount  of  the  "  sub- 
stitute "  could  never  exceed  that  of  the  metallic  money  displaced, 
the  excess,  for  which  there  was  no  use  in  the  channels  of  circulation, 
returning  immediately  to  the  issuer.  At  the  tjme  Smith  wrote  there 
was  no  money  of  the  kind  described.  It  is  easy  to  see  how  his 
mistake  arose.  He  saw  that  the  notes  of  the  Bank  of  England  were 
uniform,  or  nearly  so,  in  amount ;  and  that  only  a  small  provision 
by  way  of  reserves  appeared  to  be  made  therefor.  He  inferred, 
consequently,  that  they  were  accepted  and  maintained  in  circulation 
upon  the  credit  of  the  issuer ;  and  that  the  reserves  were  provided 
only  to  meet  "  occasional  calls "  for  coin,  and  to  take  in  any 
"excess."  He  wholly  overlooked  the  fact  that  the  notes  of  the 
Bank  were  issued  in  the  discount  of  bills,  which  in  the  place  of  coin 
served  as  the  instruments  for  the  distribution  of  merchandise  from 
producer  to  distributer,  the  notes  serving  for  the  distribution  of  the 
same  merchandise  directly  to  consumers.  The  notes  were  money 

1  "  Wealth  of  Nations,"   Book  II.,  Chapter  II.,  et  seg. 


ADAM    SMITH.  199 

for  the  reason  that,  from  their  representative  value,  they  performed 
all  the  functions  of  metallic  money.  The  term  "  money  "  might  in  fact 
be  well  applied  to  bills  of  exchange,  —  instruments  of  distribution,  — 
these,  like  the  notes  issued  in  their  discount,  being  retired  by  their 
use.  Such  instruments  of  distribution,  from  the  greater  safety  and 
convenience  of  their  use,  were  preferred  to  metallic  money  irre- 
spective of  the  saving  effected  thereby.  As  already  shown,  the 
process  of  issue  is  a  mutual  exchange  of  obligations ;  of  payment, 
the  mutual  cancelling  of  the  same  obligations.  As  the  bills  dis- 
counted by  the  Bank  matured  within  periods  of,  say,  sixty  days,  the 
notes  issued  in  their  discount  and  used  in  their  payment  were 
necessarily  returned  within  similar  periods,  and  without  any  inter- 
position on  its  part,  its  bills,  representing  merchandise  in  demand 
for  consumption,  being  certain  to  be  paid.  Issues  made  in  the  dis- 
count of  fictitious  paper  were,  from  the  credit  of  the  Bank,  accepted 
by  the  public  equally  with  those  issued  in  the  discount  of  business 
paper.  Both  alike  were  treated  as  capital.  But  issues  made  in  the 
discount  of  the  former  would  not,  for  the  want  of  means  on  the  part 
of  their  makers,  be  returned  by  them  in  its  payment,  but  by  other 
issuers  into  whose  hands  they  would  fall,  who  would  demand  the 
daily  discharge  in  coin  of  all  balances  in  their  favor.  Against  such 
issues  the  Bank  would  have  nothing  by  way  of  offset  but  its  own 
capital  in  the  form  of  coin.  For  reasons  well  understood  it  would, 
as  a  rule,  lose  an  amount  equal  to  that  of  fictitious  paper  dis- 
counted. If  it  discounted  none  other  it  would,  in  spite  of  its  re- 
serves, speedily  become  bankrupt. 

That  Smith's  theory  of  "credit  money"  never  obtained  in  England 
was  due  to  the  fact  that  the  Bank  of  England  was  forbidden  by  its 
charter  to  deal  in  anything  but  bills  of  exchange  and  gold  and 
silver  bullion.  It  would  never,  unless  imposed  upon,  exchange  its 
obligations  based  upon  capital  but  for  those  equally  well  based. 
If  possessed  of  capital,  no  conditions,  in  fact,  need  be  imposed  upon 
issuers,  as  their  chief  care  will  always  be  its  preservation.  The  Bank 
of  England,  exacting  daily  settlements  with  all  other  issuers  (it  alone 
having  the  prerogative  of  issuing  notes),  virtually  imposed  upon  all 
the  restrictions  imposed  by  law  upon  itself.  As  the  Bank  of  England 
was  a  permanent  institution,  Smith's  "credit  money"  never  had  a 
foothold  in  that  country.  It  never  had  any  in  the  United  States  during 
the  existence  of  the  two  National  Banks,  both  being  based  on  capital, 


200  ADAM    SMITH. 

and  both  being  restricted  in  their  operations  to  bills  of  exchange  and 
to  gold  and  silver  bullion.  As  they  greatly  ranked,  in  means  and 
influence,  all  other  institutions  of  the  kind ;  as  they  had  branches  in 
every  considerable  place  of  business  ;  and  as  they  received  on  deposit, 
and  in  the  payment  of  their  bills,  and  of  the  public  revenues  of  which 
they  were  the  custodians,  the  notes  and  credits  of  all  similar  institu- 
tions, occupying  positions  in  reference  to  the  Government  similar  to 
that  now  occupied  by  the  Independent  Treasury,  but  receiving 
every  kind  of  money,  they  necessarily,  for  their  own  protection,  en- 
forced daily  settlements  with  all  other  issuers,  in  this  way  imposing 
upon  all  the  restrictions  imposed  by  law  upon  themselves.  During 
their  existence  the  currency,  whoever  the  issuer  or  wherever 
issued,  was,  as  in  England,  always  the  equivalent  of  coin,  being  always 
based  upon  capital,  and  in  great  part  upon  merchandise  in  process 
of  distribution. 

The  winding-up  of  the  first  Bank  was  the  first  opportunity  for 
Smith's  "credit  money  "  here.  In  a  very  short  time  after  its  charter 
expired  the  issues  of  the  State  Banks,  subject  to  no  proper  re- 
straint, rose  speedily  from  $80,000,000  to  $300,000,000,  chiefly  by 
the  discount  of  fictitious  paper.  The  second  Bank,  supplying  every- 
where, through  its  branches,  good  money,  and  enforcing  daily  settle- 
ments with  all  other  issuers,  speedily  drove  "  credit  money  "  out  of 
existence.  The  second  opportunity  for  this  came  with  its  overthrow. 
General  Jackson  in  his  assault  upon  it,  borrowing  almost  the  exact 
language  of  Smith,  who  had  drawn  his  inspiration  from  Law,  declared 
that  the  notes  issued  by  it  were  mere  forms  of  credit,  and  that  the 
interest  charged  for  their  use  was  pure  robbery.  The  "  wild-cat 
money "  of  the  South  and  West,  and  for  a  time  of  the  whole 
country,  Smith's  "credit  money,"  was  the  result.  Within  a  short 
period  from  its  overthrow  the  currency  rose  from  $116,000,000  to 
$276,000,000,  to  speedily  fall,  from  its  inherent  rottenness,  to  $114,- 
000,000.  Of  the  terrible  disasters  that  resulted  from  the  use  of 
"  credit  money  "  the  extracts  given  from  the  annual  message  for  1857, 
of  President  Buchanan,  present  a  striking  but  by  no  means  extrav- 
agant picture.  In  the  mania  for  it  vast  numbers  of  banks  were  cre- 
ated like  those  described  by  the  governor  of  Indiana,  having  no 
offices  or  places  of  business  but  saddle-bags. 

As  the  people,  left  to  themselves,  always  seeking  the  best  methods 
to  given  ends,  will  never  long  tolerate  a  vicious  currency  of  banks, 


ADAM    SMITH.  2OI 

the  situation  when  the  war  of  the  Rebellion  broke  out  was,  through 
the  operation  of  what  may  be  termed  natural  laws,  in  great  measure 
restored.  The  Independent  Treasury,  established  by  the  Govern- 
ment to  avoid  the  use  of  Smith's  "  credit  money,"  and  into  which 
nothing  but  metallic  money  was  to  enter,  unfortunately  remained. 
In  the  payment  of  the  loans  negotiated  on  a  large  scale  with  the 
Banks  for  carrying  on  the  war,  the  Secretary,  Mr.  S.  P.  Chase, 
would  accept  nothing  but  metallic  money.  The  result  was,  as  al- 
ready shown,  the  speedy  suspension  by  them  of  specie  payments. 
Their  suspension,  accompanied  by  the  refusal  to  use  the  money  of 
banks,  necessarily  led  to  the  issue  for  the  first  time  in  our  history  of 
Smith's  "  credit  money  "  by  the  Government. 

It  was  to  avoid  the  use  by  the  Government  of  "  credit  money  "  that 
the  Independent  Treasury  was  established.  Its  establishment  forced 
in  the  end  the  adoption  of  the  very  kind  of  money  sought  to  be 
avoided.  The  remedy  for  a  vicious  currency  of  banks  will,  sooner 
or  later,  always  be  applied,  as  no  one  will  understandingly  accept 
anything  in  exchange  but  an  equivalent.  But  a  remedy  so  effectual 
in  correcting  a  vicious  currency  of  banks  cannot  be  so  readily  ap- 
plied to  the  notes  of  a  government  armed  as  they  are  with  the  legal 
tender  attribute.  When  one  refuses  the  note  of  a  bank,  for  the  rea- 
son that  it  is  not  good  money,  he  has  his  own  immediate  interest 
only  in  view.  He  is  indifferent  as  to  the  effect  of  his  refusal  in  cur- 
tailing the  currency.  When  the  same  person  is  called  upon  to  take 
action  to  retire,  as  it  were,  the  great  mass  of  currency  in  circulation, 
he  naturally  hesitates,  from  the  consequences  involved.  He  may, 
he  fears,  be  for  a  time  without  any  medium  of  exchange  whatever. 
This  is  the  reason  why  the  retirement  of  a  currency  of  Government 
notes  is  so  difficult  a  matter.  This  hesitation  will  give  place  to 
action  when  it  is  seen  that  the  reform  of  the  currency  is  a  matter 
of  absolute  necessity,  and  that,  with  provision  for  funding  the  notes 
of  the  Government,  the  amount  of  the  currency  remaining  in  cir- 
culation will  never  fall  below  that  necessary  for  the  distribution  of 
the  products  of  the  people,  than  which  nothing  more  is  to  be  asked. 

The  amount  of  the  advances  in  the  form  of  credits  to  be  made 
by  banks  and  bankers  to  merchants  or  undertakers  was  not,  said 
Smith,  to  equal  the  whole  amount  of  the  capital  of  the  former,  but 
only  an  amount  equal  to  that  of  the  gold  and  silver  they  would  be 
obliged  to  keep  on  hand  to  meet  occasional  calls.  But  banks  and 


2O2  ADAM    SMITH. 

bankers  are  never  to  advance  to  merchants  or  undertakers  any 
portion  of  their  reserves,  the  chief  function  of  the  former  being  to 
issue  instruments  of  distribution.  To  make  advances  of  their 
credits  to  serve  as  the  reserves  of  others  in  affairs  would  be  to  bring 
speedy  ruin  upon  themselves.  Every  one  in  affairs  is  to  provide 
his  own  reserves,  but  those  of  merchants  and  undertakers  may  be 
in  the  form  of  the  products  in  which  they  deal  and  which  are  to 
have  the  value  of  an  equal  nominal  amount  of  metallic  money. 

What,  asks  Smith,  is  the  proportion  which  the  circulating  money 
of  any  country  is  to  bear  to  the  whole  value  of  the  merchandise  to 
be  circulated  by  it?  And  he  replies  by  stating  that  it  may  equal  a 
fifth,  a  tenth,  a  twentieth,  or  a  thirtieth  of  the  value  of  such  mer- 
chandise. The  inquiry  and  reply  show  his  profound  ignorance 
upon  the  subject  on  which  he  wrote.  In  commercial  countries, 
like  Great  Britain  and  the  United  States,  merchandise  entering  into 
consumption  is  moved  by  the  issues  of  banks  and  bankers  which, 
from  the  services  they  perform,  are  called  money,  the  nominal 
value  of  one  equalling  the  actual  value  of  the  other. 

As  Smith's  "  credit  money  "  is,  from  its  very  nature,  always  an  in- 
strument of  fraud  and  waste  ;  as  hardly  a  day  passes  that  does  not,  in 
this  country  at  least,  show  its  real  character  in  the  disasters  that  fol- 
low its  use  (for  it  may  be  in  the  form  of  cheques  as  well  as  notes), 
how  is  it  that  he  is  still  the  unquestioned  authority  ?  The  reason  is, 
that  as  one  with  money  is  possessed  of  everything  else,  he  who  can 
show  how  it  is  to  be  had  in  abundance  is  sure  of  the  popular  ear. 
If  one  scheme  fail,  another  is  certain  to  take  its  place,  as  upon  this 
subject  there  is  no  end  to  human  credulity.  Smith,  the  greatest 
schoolman  of  modern  times,  and  one  of  the  greatest  of  all  times, 
dreaming  away  his  life  in  his  closet,  showed  how  money  was  to  be 
had  for  nothing.  The  scholasticism  of  the  middle  ages  was  almost 
unhesitatingly  adopted  by  modern  universities,  over  which,  till  within 
a  recent  period,  men  of  affairs  have  had  no  control.  The  graduates 
of  these,  armed  with  the  lessons  taught  them  by  schoolmen,  became 
the  teachers  of  our  youth,  entered  into  the  halls  of  legislation,  and 
have  had  almost  the  entire  direction  of  the  popular  mind.  All 
"learned  men,"  so  far  as  money  was  concerned,  were  naturally 
followers  of  Smith.  By  all,  "  fiat  money  "  is  held  to  be  good  money. 
Of  this,  one  illustration  will  suffice.  In  the  "  Popular  Science 
Monthly"  for  December,  1883,  Professor  Taussig,  who  now  fills 
the  chair  of  Political  Economy  in  Harvard  University,  said : 

Paper  money,  though  of  the  purest  fiat  character,  with  no  hope  or  promise  for 
its  redemption  in  specie,  may  yet  perform  with  reasonable  efficiency,  the  functions 
of  a  circulating  medium. 


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